THE  LIBRARY 
OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


Library 
Graduate  So1  ol  of  Business  Administration 

ITl  '     ~v  of  California 
Los  Angeles  24,  California 


THE  COLLEGE  OF  THE  CITY  OF  NEW  YORK 

SERIES  IN 

COMMERCE,  CIVICS  AND  TECHNOLOGY 

A  SERIES  OF  TEXTS  BY  SPECIALISTS 

EDITED  BY 

FREDERICK  B.  ROBINSON,  A.M.,  PH.D. 

DIBECTOB  or  THE  DIVISION  OF  VOCATIONAL  SUBJECTS  AND  Civic  ADMINHTBATIMI 


THE  COLLEGE  OF  THE  CITY  OF  NEW  YORK 
SERIES  IN  COMMERCE,  CIVICS  AND  TECHNOLOGY 


PROBLEMS  IN  COST  ACCOUNTING 


BY 

DEWITT  CARL  EGGLESTON,  M.E.,  C.P.A. 

AUTHOR,  "MUNICIPAL  ACCOUNTING,"  "Cosr  ACCOUNTING,"  LECTURES 

ON  COST  ACCOUNTING  AND  ON  MUNICIPAL  ACCOUNTING 

AND  MUNICIPAL  STATISTICS,  AT  THE  COLLEGE 

OF  THE   ClTT  OF  NEW  YoBK 


D.  APPLETON  AND  COMPANY 
NEW  YORK  LONDON 

1920 


CorrRiGHT,  1918,  BT 
D.  APPLETON  AND  COMPANY 


PRINTED  IN  THE  UNITED  STATES  OF  AMERICA 


56 


INTRODUCTION 

The  invention  of  machinery,  followed  by  the  rise  of  the  factory  sys- 
tem, has  resulted  in  highly  specialized  forms  of  manufacturing.  So 
specialized  is  modern  production  that  workmen  carry  on  particular 
operations  without  knowing  very  much  about  further  work  necessary 
to  produce  the  finished  commodity.  These  workmen  are  organized  in 
departments  which  require  specialists  to  direct  them.  The  relationship 
of  every  part  to  the  whole  is  known  fully  only  in  the  central  office. 
Experience  has  shown  that  as  soon  as  an  establishment  grows  to  such 
a  size  that  the  details  of  operation  in  the  various  departments  go 
beyond  the  scope  of  a  single  individual's  supervision,  some  organiza- 
tion must  be  effected  which  will  provide  records  to  guide  the  manage- 
ment in  the  exercise  of  adequate  direction  and  control  in  the  manufac- 
ture of  a  commodity  on  the  one  hand  and  in  the  selling  of  it  on  the 
other. 

Of  course  the  management  is  interested  in  fixing  a  price  for  the 
product  so  that  its  sale  upon  the  market  will  secure  the  maximum  net 
return.  Great  skill  must  be  shown  in  judging  the  market  so  as  to  fix 
a  price  which  will  be  low  enough  to  induce  the  greatest  number  of 
buyers  and  at  the  same  time  high  enough  to  give  the  greatest  net  return. 
To  one  unacquainted  with  business,  acumen  in  this  direction  would  seem 
to  be  the  prime  asset  of  the  successful  manager.  However,  the  manager 
is  also  concerned  in  keeping  down  costs.  In  his  relation  to  the  market 
he  is  interested  in  maintaining  good  prices  for  his  commodity,  but  in 
his  relation  to  the  materials  and  services  necessary  to  produce  it,  he 
is  also  interested  in  keeping  down  costs. 

It  is  clear  that  the  first  item  of  cost  is  the  raw  material  which  must 
be  worked  up  into  an  article  to  be  sold.  This  material  must  be  pur- 
chased as  cheaply  as  possible  and  it  should  be  utilized  with  such  econ- 
omy that  little  or  none  is  wasted.  Therefore,  the  manager  of  a  large 
concern  must  have  some  record  of  the  materials  used  in  producing 
goods  to  fill  orders  and  the  cost  of  those  materials.  Furthermore,  he 
must  pay  wages  to  his  workmen  who  render  personal  services,  and 
there  must  be  a  system  of  records  to  keep  him  informed  concerning  the 
quality  and  the  quantity  of  services  used  to  produce  his  commodity. 


vi  INTRODUCTION 

The  raw  material  consumed  added  to  the  labor  costs,  are  said  to  give 
the  prime  cost  of  manufacturing. 

In  addition  to  the  foregoing  items  of  expense  there  are  many  fac- 
tory or  overhead  charges  which  must  be  met.  Careful  records  of  these 
general  factory  expenses  must  be  kept  and  a  proper  proportionate 
share  must  be  attributed  to  each  department.  The  overhead  added  to 
the  prime  cost  gives  the  total  cost  of  manufacture.  By  adding  a  further 
selling  cost  or  commercial  burden,  the  total  cost  to  produce  the  com- 
modity (to  manufacture  and  sell  it)  is  obtained.  The  difference  between 
the  selling  price  and  these  total  costs  is  the  profit  made  by  the  concern. 
The  cost  accountant  seeks  to  systematize  the  various  cost  records  so 
that  they  may  be  kept  accurately  for  a  given  business  and  so  that  they 
will  form  the  basis  for  efficient  and  economical  organization  of  the 
factory,  to  the  end  that  costs  may  be  kept  as  low  as  possible. 

The  application  of  the  principles  of  cost  accounting  to  various  indus- 
tries presents  many  interesting  problems.  The  cost  expert  must  famil- 
iarize himself  with  the  details  not  only  of  each  industry  but  with  the 
establishment  in  which  he  undertakes  to  install  a  cost  system.  Consid- 
erable ingenuity  must  be  shown  to  meet  the  diversified  situations  which 
arise  in  actual  practice. 

During  the  past  year  the  author  delivered  a  series  of  lectures  on 
cost  accounting  at  the  College  of  the  City  of  New  York.  The  various 
principles  developed  were  made  clear  by  the  presentation  of  concrete 
examples  of  situations  met  by  cost  accountants  in  actual  practice. 
These  examples  were  not  academic  only;  their  material  was  drawn  by 
the  author  from  many  industries  with  the  cost  problems  of  which  he 
bad  had  wide  experience. 

After  the  principle  had  been  thoroughly  explained  with  the  aid  of 
the  example  or  type  case,  the  students  were  required  to  solve  original, 
practical  problems,  similar  in  general  character  but  not  identical  in 
detail  with  the  type.  Thus  the  method  of  original  instruction  was  fol- 
lowed by  practical  exercises  in  the  solution  of  problems. 

This  book  contains,  in  carefully  revised  form,  those  examples  and 
problems  from  which  the  best  results  were  obtained  in  class.  They  have 
been  arranged  under  fifteen  general  heads  with  topics  in  sequence  so 
as  to  develop  all  the  fundamental  principles  of  cost  accounting  in  log- 
ical order. 

The  plan  of  the  book  is  to  give  at  the  beginning  of  each  of  the  fif- 
teen parts  a  general  statement  of  the  principle  to  be  illustrated  by  the 
examples  and  applied  in  the  solution  of  the  problems.  Then  follows 
the  type  example  with  its  solution.  The  problems  should  be  solved  by 
a  student  who  has  mastered  the  example.  All  the  problems  are  ar- 


INTRODUCTION  vii 

ranged  so  that  the  answers  are  practicable  and  the  students  are  there- 
fore enabled  to  check  up  the  results  of  their  work.  Care  has  been 
taken  to  define  technical  or  special  terms  so  that  there  will  be  little 
difficulty  in  understanding  reference  to  things  found  in  particular  indus- 
tries. Thus,  to  make  clear  the  meaning  of  terms  peculiar  to  the  shoe 
industry  and  appearing  on  the  production  order  of  a  shoe  factory, 
drawings  of  a  shoe  are  reproduced  with  the  several  parts  properly  rep- 
resented and  labeled. 

The  author  will  be  glad  to  receive  communications  from  anyone 
using  the  book  and  will  answer  promptly  any  questions  which  may  be 
asked. 

DE  WITT  CARL  EGGLESTON. 

419  Homestead  Avenue, 
Mount  Vernon,  N.  Y. 


CONTENTS 


PART    I— PRODUCTION 

CHAPTER  PACK 

I.    PRODUCTION  ORDERS 3 

Job  Ticket  Used  by  a  Printer — Shoe  Factory  Produc- 
tion Orders — Straw  Hat  Factory  Production  Order — 
Garment  Factory  Production  Orders. 


PART    II— MATERIAL 

n.    PURCHASE  ORDER,  INVOICE  AND  VOUCHER  RECORD  FORMS      23 

Purchase  Order — Invoice  Form — Analysis  of  Pur- 
chases. 

III.  STOCK  RECORD  AND  INVENTORY  FORMS     ....      32 

Stock  Record  for  Ostrich  Feathers — Stores  Record  for 
Paper  Stock — Raw  Hide  Stock  Record  for  Individual 
Lots — Stock  Record  for  Ca/idied  Citron,  10  Lb.  Boxes, 
20  to  Case — Perpetual  Inventory  Record — Upper 
Leather  Record — Physical  Inventory  Forms. 

IV.  STORES  REQUISITIONS  AND  REPORTS  .        .        . ;      .        .48 

Leather  Cutting  Slip — Raw  Material  Report. 

V.    MATERIAL  COST  CALCULATIONS 56 

Cost  of  Timber  Per  Ton  of  Ground  Pulp— Material 
Cost  Calculation — Average  Cost  of  a  Mixture — Alliga- 
tion— By-Products — Loss  and  Gain  in  Weight — Take- 
up  in  Yarn  Due  to  Twisting — Invisible  Loss — Cost  of 
Yarn  in  Knit  Goods — Weight  of  Organzine  and  Tram 
Required  far  Broad  Silks — System  of  Counts. 
ix 


CONTENTS 


PART    III— LABOR 

CHAPTER  PAUK 

VI.    WAGE  SYSTEMS 77 

Piece-Work  Rates — Differential  Piece-Work  Rates — 
Premium  Wage  Rates — Bonus  Wage  Rates — Efficiency 
Wage  System. 

VII.    TIME  KEEPING  AND  PAY-ROLL  FORMS       ....      92 

Compositor's  Daily  Time  Report — Pressroom  Daily 
Time  Ticket — Bindery  Daily  Time  Ticket — Decimal 
System  of  Time  Reporting — Pay  Roll  Forms — Pay 
Roll  Calculations. 


PART    IV— OVERHEAD 

VIII.    INDIRECT  EXPENSE 123 

Overhead  or  Burden  Rates — Distribution  of  Indirect 
Expense  in  Textile  Mills — Distribution  of  Spinning 
Mill  Overhead — Distribution  of  Weaving  Mill  Over- 
head— Burden  Rates  in  Foundries — Hourly  Machine 
Rates — Cost  of  Unused  Capacity — Burden  Distribu- 
tion— Cumulative  and  Comparative  Analysis  of  Ex- 
pense. 

IX.    DEPRECIATION 156 

Depreciation — Straight  Line  Method — Fund  for  De- 
preciation— Depreciation — Fixed  Percentage  on  Di- 
minishing Value  Method — Depreciation — Sinking  Fund 
Method — Depreciation  on  Mines  and  Mining  Proper- 
ties. 

PART   V— COSTS 

X.    COST  OP  MANUFACTURE     .        .        .        .        .        .        .    175 

Cost  of  Manufacture — (Overhead  Applied  as  a  Per- 
centage on  Labor) — Cost  of  Manufacture — (Overhead 
Applied  on  the  Basis  of  a  Rate  Per  Productive  Hour) 
— Cost  of  Manufacture — (Overhead  Applied  on  the 
Basis  of  a  Rate  Per  Machine  Hour) — Cost  of  Manu- 


CONTEXTS  xi 

CHAPTER  PAGE 

facture — (Overhead  Applied  on  the  Basis  of  the  Num- 
ber of  Units  Produced) — Cost  of  Manufacture  Over- 
head and  Direct  Labor  Together  Applied  on  the  Basis 
of  a  Rate  Per  Solid  Hour. 

XL    SPECIAL  RECORDS  AND  CHARTS 190 

Sales  Analysis — Workmen's  Efficiency — Individual 
"Workman's  Time  Record  Sheet — Percentage  of  Effi- 
ciency— Machine  Tabulated  Records. 

XII.  APPLICATION  OF  THE  PRINCIPLES  OF  COST  FINDING  IN  THE 
LEATHER,  KNIT  GOODS,  CORDAGE,  TEXTILE  FINISH- 
ING AND  COTTON  YARN  INDUSTRIES  .  .  .  203 

Cost  of  Manufacturing  Leather — Sole  Leather  Cost 
Formula — Labor  Cost — Indirect  Expense  Cost — Total 
Cost — Upper  Leather  Cost  Formula — Labor  Cost — In- 
direct Expense — Total  Cost — Cost  Calculations — Cost 
of  Manufacturing  Knit  Goods — Cost  of  Manufactur- 
ing Cordage — Manufacturing  Operations — Cost  of 
Simple  and  Combined  Manufacturing  Processes — Con- 
version Cost  of  Yarn  According  to  the  Average  Num- 
ber System. 

XIII.  SUNDRY  COST  PROBLEMS 237 

Cost  Per  Square  Yard  of  Asphalt  Laid — Cost  Per 
Square  Foot  for  Floor  Space  and  Cost  Per  Kilowatt 
Hour  for  Electricity — Cost  of  Producing  and  Selling 
Bread — Cost  of  Producing  a  Dozen  Pairs  of  Goodyear 
Welt  Shoes. 

XIV.  JOURNAL,  LEDGER,  PROFIT  AND  Loss   STATEMENTS  AND 

BALANCE  SHEET 255 

Cost  System  for  a  Foundry  and  Machine  Shop — Cost 
Accounts  for  a  Machine  Tool  Builder — Cost  Accounts 
for  a  Furniture  Factory — Cost  System  for  a  Tannery 
— Journal  Ledger  and  Statements — Cost  Accounts  for 
a  Large  Machine  Shop. 

XV.    ESTIMATING   COST  SYSTEM       .        .        .        .        .        .    306 

XVI.  COSTS  IN  THE  BRICK  MANUFACTURING  AND  COPPER  MIN- 
ING INDUSTRIES  ....  314 


xii  CONTENTS 

r  IIAPTER  PAGE 

XVII.    EXAMINATION  QUESTION    .  ,        .        .        ,        .    321 

Cost  Accounts  in  the  Portland  Cement  Industry — Clos- 
ing Manufacturing  and  Trading  Accounts — Trial  Bal- 
ance of  General  Ledger  after  Closing  Manufacturing 
and  Trading  Accounts — Trading  and  Profit  and  Loss 
Account  and  Statement  of  Monthly  Operation  Costs — 
Balance  Sheet. 

INDEX  339 


EXHIBITS 


1.  Printer's  Estimate  Sheet 6 

2.  Printer's  Job  Ticket 8 

3.  Cross  Section  of  a  Goodyear  Welt  Shoe 9 

4.  Shoe  Last 10 

5.  An  Insole 10 

6.  AnOutsole 11 

7.  Shoe  Lasted  and  Ready  to  have  Welt  Sewed  on       ....  11 

8.  Shoe  with  Heel  in  Place 12 

9.  Shoe  Tag— Front  Side 14 

10.  Shoe  Tag— Back  Side 16 

11.  Purchase  Order 24 

12.  Voucher  Stamp »     .     .     .     .  27 

13.  Petty  Cash  Voucher 27 

14.  Accounts  Payable  Register 29 

15.  Dressed  Goods  Stock  Record  for  Use  in  an  Ostrich  Plume 

Factory       ..." 34 

16.  Raw  Hide  Stock  Record  for  Individual  Lots 37 

17.  Perpetual  Inventory  Stock  Record 41 

18.  Upper  Leather  Record  for  Use  in  a  Shoe  Factory     ....  43 

19.  Requisition  on  Storekeeper 49 

20.  Outside  and  Leather  Lining  Cutting  Slip 51 

21.  Raw  Material  Report 54 

22.  Chart  Showing  Three  Methods  of  Cutting  a  Hide  Used  for 

Sole  Leather 62 

23.  Daily  Time  Ticket  for  Composition  Department  in  a  Job 

Printery 94 

24.  Daily  Time  Ticket  for  Pressroom  in  a  Job  Printery       ...  97 

25.  Daily  Time  Ticket  for  Bindery  Department  in  a  Job  Printery  101 

26.  Daily  Time  Ticket  for  Bindery  Department  in  a  Job  Printery  106 

27.  Payroll  for  Composition  Department  in  a  Job  Printery      .     .  109 

28.  Payroll  Calculation  Sheet 116 

29.  Payroll  for  Weaving  Mill 117 

30.  Production  Table  of  Ring  Warp  and  Ring  Filling  Yam      .     .  130 

31.  Production  Table  Showing  Yards  Produced  by  Looms  .     .     .  130 

32.  Idle  Machinery  Report 146 

xiii 


xiv  EXHIBITS 

PAGE 

33.  Cumulative  and  Comparative  Analysis  of  Expense  ....  154 

34.  Chart  Showing  the  Depreciated  Value  at  the  End  of  Each 

Year  of  a  $1,000  Machine  with  a  Scrap  Value  of   $100, 
Having  an  Estimated  Life  of  10  Years,  According  to  the 

Straight  Line  Method         '.....  158 

35.  Stores  Issued  Punch  Card 200 

36.  Cost  Sheet 239 

37.  Page  1.    Journal  Entries  for  a  Tannery 284 

37.  Page  2.    Journal  Entries  for  a  Tannery 285 

38.  Trading  and  Profit  and  Loss  Account  for  a  Tannery     .     .     .  287 

39.  Balance  Sheet  for  a  Tannery 289 

40.  Analysis  of  Cost  Accounts  for  a  Tannery 291 


PART  I 
PRODUCTION 


CHAPTER   I 
PRODUCTION    ORDERS 

For  purposes  of  instruction  we  can  classify  factories  as  of 
two  sorts:  The  first  works  to  turn  out  great  numbers  of  a 
standard  article,  such  as  a  motor  car  or  safety  razor.  The 
second  turns  out  articles  which  vary  according  to  the  orders 
of  particular  customers.  A  good  example  of  the  second  is  a 
printing  establishment  which  prints  many  books  in  various 
styles,  posters  of  all  kinds,  cards,  letterheads,  pamphlets,  mag- 
azines and  folders.  Hardly  any  order  will  be  filled  by  a  product 
exactly  like  that  of  its  predecessor.  Whether  the  factory  is  of 
the  first  sort  or  second,  it  is  usually  departmentalized  and 
each  department  is  organized  so  as  to  turn  out  some  part  of 
the  product  or  perform  some  service  in  the  series  of  operations 
necessary  for  production.  Clearly  the  directing  head  or  plan- 
ning office  of  the  factory  must  give  specific  orders  to  each  de- 
partment, indicating  the  character  and  amount  of  work  it  must 
perform  and  the  quality  and  quantity  of  material  it  must  use. 
For  factories  of  the  second  sort,  obviously,  the  problem  of  giving 
orders  to  the  various  departments  is  more  intricate  than  for 
those  of  the  first  sort,  and  calls  for  original  calculation  with 
nearly  every  order  to  be  filled.  The  cards  or  slips  on  which 
these  orders  are  given  are  known  as  production  orders.  Though 
production  orders  are  necessary  in  most  departmentalized  fac- 
tories, it  is  best  to  take  for  study  examples  those  of  the  factory 
of  the  second  sort,  for  they  cover  a  wider  range  of  variation. 

The  procedure  generally  followed  is  to  prepare  a  production 
orde,r  form  which  can  be  filled  out  quickly  and  which  will  con- 

3 


4      PROBLEMS  IN  COST  ACCOUNTING 

tain  all  directions  necessary  for  all  departments  which  are  to 
cooperate  in  filling  the  order.  No  essential  item  may  be 
omitted.  Once  a  good  form  is  devised,  orders  can  be  issued 
quickly  and  accurately  without  likelihood  of  error  through 
omission. 

Sometimes  production  orders  are  made  in  manifold  so  that 
one  copy  can  be  used  for  making  a  cost  summary  of  the  whole 
job,  while  other  copies  go  to  the  various  departments  which 
must  receive  information  concerning  work  to  be  done. 

An  important  feature  of  a  given  production  order  is  the 
serial  number  put  upon  it  by  the  planning  office.  If  the  order 
calls  for  certain  materials  to  be  drawn  from  the  storeroom,  the 
department  head  may  make  out  a  stores  requisition  for  these 
materials  and  his  stores  requisition  will  bear  the  same  serial 
number  as  that  of  the  production  order  for  the  job  using  the 
material.  The  same  serial  number  is  used  on  time  tickets  in  a 
similar  way.  The  various  places  in  which  this  serial  number 
will  be  repeated  will  be  treated  in  detail  later,  but  we  may 
say  now,  in  general,  that  its  consistent  use  makes  possible  a 
ready  compilation  of  the  cost  of  the  whole  job  when  completed. 

In  some  factories  production  orders  fall  in  general  classes, 
as  for  instance  production  orders  for  merchandise  to  fill  custo- 
mers' orders,  production  orders  to  authorize  the  making  of  pat- 
terns for  factory  use,  or  an  order  to  authorize  repairs  or  the 
making  of  tools.  For  convenience  these  production  orders  may 
be  on  paper  of  different  colors  or  with  letters  prefixed,  as :  M 
for  merchandise  orders,  and  R  for  repairs. 

Clearly  it  is  necessary  to  devise  production  order  forms  to 
meet  the  individual  requirements  of  a  particular  factory  en- 
gaged in  its  own  peculiar  work  through  its  special  organiza- 
tion. To  do  this  one  must  have  an  intimate  acquaintance  with 
the  establishment  in  question.  A  study  of  the  following  forms 
will  indicate  the  general  principles  to  be  applied  in  special 


PRODUCTION  5 

cases.  To  begin  with,  the  printing  industry  affords  a  good 
illustration  of  a  trade  where  the  work  is  practically  all  done  on 
individual  production  orders  called  job  tickets.  The  procedure 
followed  in  estimating  on  an  order  and  in  filling  out  a  job  ticket 
will  be  explained  somewhat  in  detail. 

JOB  TICKETS  USED  BY  A  PRINTER 

When  a  job  printer  wants  to  bid  on  an  order  he  makes  out 
an  Estimate  Sheet,  such  as  js  shown  in  Exhibit  1.  Each  item 
in  the  job  is  separately  estimated  upon,  so  that  actual  costs  can 
be  compared  with  the  estimate  after  the  job  has  been  finished. 
If  the  printer  is  successful  in  getting  the  job  it  is  necessary  to 
prepare  a  production  order  which  will  contain  the  necessary 
information  to  enable  the  factory  to  fill  the  customer's  order. 
The  conditions  to  be  fulfilled  by  the  production  order  form  will 
readily  be  understood  from  the  following  example : 

Example. — Required  to  design  a  Production  Order  form 
for  a  job  printer  who  has  a  stock  department  and  six  manu- 
facturing departments  as  follows:  Cutting,  ruling,  composi- 
tion, job  press,  cylinder  press  and  bindery.  In  preparing  the 
form  it  is  necessary  to  bear  in  mind  the  following  facts  which 
a  printer  must  know  in  order  to  execute  an  order  intelligently : 

1.  Name  and  address  of  customer. 

2.  Quantity  and  description  of  work  to  be  done. 

3.  Quantity,  weight  and  kind  of  stock  (paper  or  card)  to 
be  used  and  color  of  ink. 

4.  To  whom  proof  is  to  be  shown. 

5.  Date  when  job  is  promised. 

6.  Directions  for  each  manufacturing  department. 

(a)  Cutting — Size  to  cut  the  stock. 

(b)  Ruling — Like  copy  or  otherwise, 


ESTIMATE   SHEET 

DATE                                              No. 

CUSTOMER 

NUMBER  OF  COPIES 

DESCRIPTION 

ITEM                  UNIT 

DETAIL 

AMOUNT 

PAPER 

Irm 

BURDEN    (a> 

CUTTING 

RULING 

COMPOSITION 

JOB  PRESS     /Ox/5 

/4x23 

CYLINDER    PRESS    A 

»'                        B 

BINDERY 

OUTSIDE 

SELLING    EXPENSE. 

PRICE.    TO  CHARGE 

SHIPPING     INSTRUCTIONS: 

EXHIBIT  1. — Printer's  Estimate  Sheet. 
6 


PRODUCTION  7 

(c)  Composition — Hand,  linotype,  etc. 

Set  body  short  or  long  way,  etc. 

(d)  Job  press — Ink,  run  (number  of  impressions) 

special  instructions. 

(e)  Cylinder  press — Special  instructions. 

(f)  Binding — Perforate,  score,  punch,  fold,  etc. 

7.  It  is  often  necessary  to  have  outside  work  done  in  addi- 
tion to  the  work  which  a  printer  has  facilities  for  doing.     Pro- 
vision has  to  be  made  on  the  form  for  recording  the  cost  of 
such  engravings,  electro  cuts,  ruling  or  binding,  etc.,  as  may 
be  done  outside. 

8.  Lastly,  shipping  instructions  must  not  be  omitted. 

The  solution  is  presented  in  Exhibit  2,  which  shows  a  simple 
form  of  Job  Ticket  used  by  some  printers. 

The  lithographing  business  is  not  unlike  the  printing  in- 
dustry, inasmuch  as  the  work  is  mostly  done  on  individual  jobs. 

Problem  1 

Design  a  General  Work  Order  and  a  Type  Printing  Order 
for  an  establishment  doing  a  general  lithographing  business. 
The  manufacturing  production  orders  are  made  out  either  from 
customers'  orders  or  from  the  storekeeper's  requisitions  for 
more  stock. 

General  Work  Order. — The  General  Work  Order  must  pro- 
vide for  entering  the  following  information:  Name  and  ad- 
dress of  customer,  order  number,  salesman  and  date  when  the 
delivery  is  promised.  Under  "Description  of  Work"  provision 
must  be  made  for  entering  the  necessary  information  regard- 
ing (1)  proof,  number  of  sheets,  stone  numbers,  composites, 
number  of  colors,  copyright,  size,  imprint,  hold  stones  or  plates ; 
(2)  tab,  round  corners,  rule,  punched,  folded,  easel,  elevated, 
padded,  corded,  embossed,  roughed,  beveled,  die  cut,  tinned;  (3) 


JOB  TICKET  N 


FOR 

ADDRESS 

QUANTITY  AND   DESCRIPTION 


SIZE COLOR     INK 

SHOW     PROOF 


JOB     PROMISED- 

STOCK COMPOSITION. 

CUT     STOCK    TO 


DIRECTIONS   FOR    PRINTING. 


ELECTROTYPES 

DIRECTIONS   FOR  RULING. 


NUMBER    IN COLOR. 

COMMENCING    AT TO 

PERFORATING. . 

PUNCHING 


SHIPPING    DIRLCTIONS 


EXHIBIT  2. — Printer's  Job  Ticket. 
8 


PRODUCTION  9 

stock  ordered,  stock  received,  stock  charged;  (4)  shipping  in- 
struction. 

Type  Printing  Order. — The  Type  Printing  Order  must  pro- 
vide the  necessary  instructions  for  doing  the  printing  from  type 
as  follows:  Name  and  address  of  customer,  quantity  wanted, 
color,  description  and  size.  Under  the  general  heading,  "Paper 
Stock,"  provision  should  be  made  for  showing  number  of  sheets, 
size  of  stock,  stock  ordered,  and  stock  received.  In  addition  to 
the  foregoing  information  it  is  necessary  to  give  the  style  and 
size  of  type,  drawings,  engravings  and  electros. 

SHOE  FACTORY  PRODUCTION  ORDERS 

Shoe  factories  are  highly  organized  and  need  a  production 
order  system  which  will  effectively  control  the  output.  It  is  es- 
sential that  the  form  of  production  order  decided  upon  should 


CROSS  SECTION  OF  A  GOODYEAR  WELT  SHOE 


CORK  nuji«o 


EXHIBIT  3. — Cross  Section  of  a  Goodyear  Welt  Shoe. 

provide  for  giving  full  details  pertaining  to  what  is  to  be  done 
in  the  factory.  An  examination  of  the  parts  in  a  shoe  and  the 
processes  through  which  they  go  in  order  to  be  made  into  a  sal- 
able product  will  show  the  importance  of  including  all  neces- 


10 


PROBLEMS  IN  COST  ACCOUNTING 


A  LAST 


EXHIBIT  4. — Shoe  Last. 


sary  information  on  the  production  order  form.     In  order  that 
the  student  may  be  informed  regarding  some  of  the  technical 


AN  INSOLE 


EXHIBIT  5. — An  Insole. 


PKODUCTION 


11 


AN  OUT50LE 


EXHIBIT  G. — An  Outsole. 

features  involved  in  preparing  production  orders,  reference  will 
be  made  to  several  exhibits  illustrating  the  parts  of  a  shoe  as 
well  as  a  shoe  in  various  stages  of  manufacture. 


SHOE  LASTED  AND  REAW  TO  HAVE  YYELT  SEVftD  OH 


EXHIBIT  7. — Shop  Lasted  and  Readv  to  Have  Welt  Sewed  on. 


12 


PROBLEMS  IN  COST  ACCOUNTING 


A  good  idea  of  the  relation  which  the  parts  of  a  shoe  bear  to 
each  other  can  be  obtained  from  Exhibit  3,  which  shows  a  cross 
section  of  a  shoe.  The  style  of  shoe  illustrated  is  that  known 
as  a  Goodyear  Welt.  The  upper  is  shown  united  to  the  outsole 
by  means  of  the  welt.  The  stitch  is  also  shown  which  unites 
the  insole,  upper  and  welt,  as  well  as  the  stitch  which  joins  the 


SHOE  WITH  HEEL  IN  PLACE 


EXHIBIT  8. — Shoe  with  Heel  in  Place. 

outsole  and  welt.  All  the  important  parts  used  in  making  a 
shoe  have  the  trade  names  shown  by  which  they  are  known.  A 
wooden  last,  the  form  of  which  determines  the  shape  of  a  shoe, 
is  shown  in  Exhibit  4.  The  soles  required  for  the  manufacture 
of  shoes  are  cut  out  of  sole  leather  to  conform  to  the  desired 
pattern.  The  insole  which  is  shown  in  Exhibit  5  is  made  of 
lighter  leather  than  the  outsole  shown  in  Exhibit  6.  The  for- 


PBODUCTIOK  13 

mer  is  channeled  on  a  machine  which  cuts  a  little  slit  along  the 
edge,  extending  about  one-half  inch  toward  the  center  of  the  in- 
sole. Finally  the  lip  formed  by  the  channeling  process  is  turned 
up  so  that  it  extends  out  at  a  right  angle  from  the  insole,  form- 
ing a  shoulder  against  which  the  welt  is  sewed.  The  various 
parts  of  a  shoe  are  assembled  in  the  lasting  room  by  an  operator 
who  places  the  toe  box  in  the  proper  location,  as  well  as  the 
counter  at  the  heel,  and  draws  the  upper  over  the  wooden  last 
to  which  the  insole  has  been  tacked.  A  shoe  is  shown  in  Ex- 
hibit 7,  lasted  and  ready  to  have  the  welt  sewed  on.  The  heel 
of  a  shoe  is  fastened  by  means  of  a  machine  which  drives  the 
nails  through  the  heel,  upper  and  insole,  clinching  them  back 
into  the  leather.  A  shoe  with  heel  in  place  is  shown  in  Exhibit 
8,  ready  for  the  blacking  and  burnishing  process. 

The  problem  involved  in  the  preparation  of  a  suitable  pro- 
duction order  for  making  a  case  of  shoes  is  presented  in  the  fol- 
lowing example. 

Example. — Design  a  production  order  or  Shoe  Tag  for 
a  shoe  factory.  The  information  required  on  the  front  of  the 
tag  is  as  follows:  (A)  2s"ame  of  salesman,  date  sold,  terms, 
name  and  address  of  customer,  shipping  instructions,  date 
wanted,  order  number,  style  number  and  lot  number.  (B)  The 
sizes  run  from  1  to  9  in  l/2  sizes  and  provision  must  be  made 
for  distributing  the  quantity  ordered  by  sizes.  (C)  The  speci- 
fications for  the  ball,  waist,  instep,  heel,  ankle  and  top  must 
be  given.  (D)  Provision  must  also  be  made  for  giving  infor- 
mation regarding  the  following  items : 


\7'amp  pattern 

Sewed 

Pairs 

Tip  pattern 

Last 

Grade 

Quar.  pattern 

Length  vamp 

Style 

Stock  vamp 

Box 

Top  facings 

Stock  tops 

Counter 

Labels 

12 
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3 


PRODUCTION  15 

Stock  tip  Width  welt  Size  system 

Back  strap  Outsole  Carton 

Linings  Insole  Stamp  carton 

Quarter  linings  Sole  stitch  Forepart  stamp 

Eyelets  Edge  Shank  stamp 

Buttons  Heel  Ribbons — laces 

Button  laps  Heel  cutter  Slide 

Perf.  fox  Brass  slugging  Bow 

Top  piece  Remarks 

Bottom  finish  Date  shipped 
Bottom  linings 

(E)  Count  and  examine  this  lot,  as  any  short  or  damaged 
will  be  charged  to  the  person  who  last  handled  it. 

The  information  required  on  the  back  of  the  Shoe  Tag  is 
as  follows:  (F)  Date  left  office;  date  left  fitting  room;  date 
left  bottoming  room ;  date  left  cutting  room ;  date  left  shipping 
room.  (G)  Space  must  be  allowed  for  operatives  to  enter 
their  names  opposite  the  operations  which  are  done  in  the  va- 
rious departments  as  follows: 

Cutting  Room.-^Outside  cutter,  examined  and  counted  by, 
trimming  cutter. 

Fitting  Room. — Counted  by,  skiver,  backstrapper,  header, 
fitter,  top  closer,  top  stitcher,  vamper,  packed  and  counted  by. 

Bottoming  Room. — (1)  Puller  over,  machine  laster,  hand 
laster,  tack  puller,  sewer,  sole  layer,  rounder,  stitcher,  fudge 
wheeler,  second  laster,  seat  nailer,  seat  trimmer;  (2)  heeler, 
heel  shaver,  heel  breaster,  edge  trimmer,  seat  beater,  1st  heel 
scourer,  jointer,  edge  setter,  fudge  burnisher,  edge  cleaner,  2nd. 
heel  scourer,  heel  burnisher;  (3)  bottom  scourer,  naumkeag 
scourer,  bottom  stainer,  upper  cleaner,  seat  wheejer,  finisher, 
crowner,  sole  stamper,  heel  liner,  lining  cleaner,  ironer,  lace  or 


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PRODUCTION  17 

buttoner;  (4)  bow  sewer,  second  crowner,  tip  fixer,  stencil  car- 
tons, mating,  packer. 

The  solution  is  presented  in  Exhibits  9  and  10,  which  show 
the  front  and  back  sides  of  a  Shoe  Tag. 

STRAW  HAT  FACTORY  PRODUCTION  ORDER 

There  are  many  details  in  common  between  the  form  of  pro- 
duction orders  used  in  a  shoe  factory  and  those  used  in  a  straw 
hat  factory.  Hat  orders  are  issued  in  manifold  so  that  every- 
one requiring  information  in  regard  to  production  orders  which 
have  been  issued  can  be  furnished  with  a  duplicate  copy  of  each 
order.  The  information  required  on  a  straw  hat  factory  order 
is  given  in  the  following  problem. 

Problem  2 

Design  a  quadruplicate  production  order  for  use  in  a  straw 
hat  factory.  The  four  copies  are  designated  as  follows : 

Original  Printer's  Tip  Order 

Duplicate  Requisition  for  Trimming 

Triplicate  Requisition  for  Plait 

Quadruplicate  Cost  Summary  Sheet 

The  following  information  is  common  to  all  copies  of  the 
order:  (1)  name  and  address  of  customer,  order  number,  date, 
quantity,  block,  crown,  brim,  plait,  estimated  yards,  stiffening, 
band  width,  band  color,  bow,  sweat  band,  guard,  customer's 
order  number,  customer's  style  number,  customer's  die  number, 
our  die  number,  date  to  be  shipped,  date  shipped;  (2)  sizes 

,  6,  6i/8,  6i/4,  6%,  6i/2,  6%,  6%,  6%,  7,  7%,  7i/4,  7%,  7%, 

>  ^%>  7%j  8;  (3)  tip,  die  at,  how  print,  ink,  sent,  received, 
boxes,  checked. 

The  Original  or  Printer's  Tip  Order  contains  a  blank  space 


18  PROBLEMS  IN  COST  ACCOUNTING 

in  the  lower  half  on  which  he  can  make  out  his  bill.  At  the 
bottom  the  following  instructions  appear:  Please  return  this 
Order  with  the  Tips,  Balch,  Price  &  Co.,  376  Fulton  Street, 
Brooklyn,  N.  Y.  (Note:  by  tip  is  meant  the  printed  ribbon 
on  the  inside  of  a  hat.) 

The  Duplicate  or  Requisition  for  Trimming  contains  col- 
umns in  the  lower  half  for  entering  the  description  of  the  trim- 
ming, quantity  taken,  quantity  returned,  net  quantity  used, 
price  and  amount. 

The  Triplicate  or  Requisition  for  Plait  also  contains  space 
in  the  lower  half  for  entering  the  description  of  the  straw 
braid,  or  plait,  quantity  taken,  quantity  returned,  net  quantity 
used,  price  and  amount. 

The  Quadruplicate  or  Cost  Summary  Sheet  contains  col- 
umns in  the  lower  half  for  entering  the  cost  of  material  (de- 
scription, quantity,  unit,  price,  amount)  ;  labor  by  departments 
1,  2,  3,  4,  etc.,  and  burden  by  departments  1,  2,  3,  4,  etc.  An 
additional  item  of  supplies  is  added  to  cover  thread  and  size 
used  to  stiffen  the  hats. 

GARMENT  FACTORY  PRODUCTION  ORDERS 

In  a  make-to-order  garment  factory  it  is  necessary  to  use  a 
special  form  of  production  order  with  coupons  which  are  de 
tached  by  the  employees  as  soon  as  operations  are  completed. 
The  specifications  for  preparing  a  coupon  production  order  for 
a  garment  factory  are  given  in  the  next  problem. 

Problem  3 

Design  a  Coupon  Production  Order  for  a  coat  in  a  make- 
to-order  garment  factory  where  all  work  is  on  a  piece-work 
basis.  Instructions  at  the  top  of  the  tag  provide  for  entering 
the  (1)  day,  date,  production  order  number;  (2)  arrangement 


PRODUCTION  19 

of  buttonholes;  (3)  instructions  for  making  seams;  (4)  style 
and  kind  of  silk  used  in  lining;  (5)  twenty-six  squares  are  pro- 
vided on  the  tag  above  the  coupons,  corresponding  to  the  twenty- 
six  operations  on  a  coat,  and  numbered  from  1  to  26,  inclusive. 
Below  the  upper  portion  of  the  order  are  two  vertical  rows 
of  13  coupons  each,  making  26  coupons  in  all.  Each  coupon 
contains  the  name  of  the  operation  as  well  as  the  production 
order  number.  The  operations  are  classified  as  follows : 

26  Brusher  25  Off  presser 

24  Basting  puller  23  Buttonhole  maker 

22  Edge  stitcher  21  Finisher 

20  Collar  maker  19  Collar  sewer 

18  Collar  shaper  17  Collar  presser 

16  Armhole  baster  15  Armhole  presser 

14  Sleeve  maker  13  Lining  baster 

12  Edge  baster  11  Sleeve  and  tape  presser 
10  Taper  9  First  baster 

8  Shaper  7  Canvas  baster 

6  Seam  presser  5  Collar  maker 

4  Lining  presser  3  Lining  maker 

2  Sleeve  maker  1  Trimmer 

As  each  workman  detaches  the  coupon  corresponding  with 
the  operation  which  he  performs,  he  also  enters  his  clock  num- 
ber in  the  proper  square  above  the  coupons. 

The  coupons  for  one  day  are  tied  together,  and  the  oper- 
ative's clock  number,  together  with  the  number  of  coupons  in 
the  bundle,  is  marked  on  the  lowermost  coupon. 


PART  II 
MATERIAL 


CHAPTER  II 

PURCHASE  ORDER,  INVOICE  AND  VOUCHER  RECORD 

FORMS 

PURCHASE  ORDER 

There  are  certain  forms  that  are  required  to  be  used  in  con- 
nection with  the  operation  of  every  cost  accounting  system. 
Consideration  will  first  be  given  to  the  purchase  order  form. 
It  is  the  usual  practice  to  prepare  these  forms  in  manifold  so 
that  several  copies  may  be  typewritten  at  once.  In  the  case  of 
a  purchase  order  at  least  three  copies  would  ordinarily  be  re- 
quired for  the  vendor,  office  file,  and  receiving  clerk.  The  in- 
formation required  on  a  purchase  order  is,  of  course,  governed 
to  a  certain  extent  by  the  requirements  of  each  individual  busi- 
ness. The  following  example  will  not  only  illustrate  some  of 
the  salient  features  involved  in  the  preparation  of  a  purchase 
order,  but  will  also  indicate  what  would  be  required  on  an 
order  under  the  conditions  prevailing  in  a  typical  factory. 

Example. — Design  a  Purchase  Order  Form  for  the  Akron 
Supply  Co.,  of  Akron,  Ohio.  The  orders  are  to  be  consecutively 
numbered  and  contain  the  following  request  in  the  middle — 

"Please  execute  our  order  as  specified  below." 
Orders  also  contain  the  following  instructions: 
"Bills  must  be  rendered  in  duplicate  and  will  be  paid  for  on 
the  20th  of  the  second  month  following  delivery  of  goods  at 
destination,  unless  otherwise  agreed.     No  charges  allowed  for 
packing  or  cartage." 

"Acknowledge  receipt  of  this  order  and  state  date  upon 

28 


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MATERIAL  25 

which  shipment  will  be  made.  'At  once'  and  'Soon  as  possible' 
are  not  dates.  Put  the  following  number  on  all  bills,  packages, 
and  bills  of  lading." 

Orders  are  signed  by  the  Purchasing  Agent. 

When  form  is  finished  make  out  an  order  No.  5996,  on  the 
Candied  Citron  and  Peel  Co.,  of  New  York,  for  10,000  pounds 
•'American  Flag"  citron  at  ll1/^  cents  per  pound. 

The  solution  is  presented  in  Exhibit  11,  which  shows  how 
a  purchase  order  on  the  Akron  Supply  Company  would  be 
made  out. 

INVOICE  FORM 

Forms  are  also  required  for  use  in  making  out  invoices. 
These  are  usually  typewritten  in  manifold  in  order  to  provide 
copies  for  the  customer,  bookkeeper,  and  collection  clerk.  The 
following  problem  gives  the  information  required  on  the  in- 
voice in  a  knit  goods  mill. 

Problem  4 

Design  an  Invoice  for  the  Newton  Knitting  Mills,  manu- 
facturers of  men's  high  grade  underwear.  Provision  must  be 
made  for  showing  the  folio  number,  customer's  name  and  ad- 
dress, date  sold,  and  terms.  In  addition,  columns  should  be 
provided  for  the  following  information:  Case  No.,  style  No., 
dozens,  kind,  size,  pairs  and  amount.  Make  the  necessary  en- 
tries to  record  the  following  information: 

On  Jan.  3,  1917,  the  Newton  Knitting  Mills  of  New  York 
sold  to  Thomas  Smith  and  Son,  Salem,  Mass.,  the  following 
lot  of  goods,  terms  four  months  net,  or  2  per  cent  ten  days : 

6  doz.  men's  wool  shirts,  style  No.  8,  size  36,  at. . .  $8.00  doz. 

10  doz.  men's  wool  shirts,  style  No.  8,  size  38,  at. . .  8.00    " 

8  doz.  men's  wool  shirts,  style  No.  8,  size  40,  at. . .  8.00    a 

6  doz.  men's  wool  shirts,  style  No.  8,  size  42,  at. ..  8.50    u 


26     PKOBLEMS  IN  COST  ACCOUNTING 

6  doz.  men's  wool  drawers,  style  No.  8,  size  34,  at .  $8.00  doz. 
10  doz.  men's  wool  drawers,  style  No.  8,  size  36,  at .     8.00    " 
8  doz.  men's  wool  drawers,  style  No.  8,  size  38,  at .     8 . 00     " 
6  doz.  men's  wool  drawers,  style  No.  8,  size  40,  at .     8 . 00    " 

The  shirts  were  packed  in  case  No.  2,  and  the  drawers  in 
rase  No.  3. 

ANALYSIS  OP  PURCHASES 

The  principle  is  well  established  of  setting  up  all  liabilities 
on  the  voucher  record,  or  accounts  payable  register  as  it  is  some- 
times called,  and  of  liquidating  the  liabilities  thus  set  up  later 
in  the  cash  book.  By  this  means  a  distribution  of  all  purchases 
is  readily  obtained  against  any  desired  classification  of  ac- 
counts. The  general  plan  of  procedure  is  to  provide  as  many 
columns  as  necessary  for  the  purpose  of  distributing  purchases 
according  to  the  classifications  which  are  entered  at  the  head  of 
each  column.  A  sundries  column  can  be  added  to  provide  for 
such  miscellaneous  items  as  are  not  of  frequent  occurrence. 

The  routine  generally  followed  in  handling  vendors'  in- 
voices where  a  voucher  system  is  installed  is  to  make  use  of  a 
voucher  stamp  such  as  is  shown  in  Exhibit  12.  This  stamp 
provides  a  means  for  checking  various  items  on  the  invoice,  such 
as  the  price,  terms,  extensions,  etc.  It  is  only  after  the  invoices 
are  properly  checked  that  they  are  entered  in  the  accounts  pay- 
able register.  By  the  operation  of  a  petty  cash  fund  and  a 
petty  cash  voucher,  such  as  is  shown  in  Exhibit  13,  it  is  possible 
to  set  up  the  vouchers  for  petty  cash  expenditures  on  the  ac- 
counts payable  register  and  clear  the  transactions  by  means  of 
a  check  drawn  in  favor  of  petty  cash  in  the  same  manner  that 
vendors'  claims  are  cleared. 

After  invoices  have  been  approved  for  payment  they  are  en- 
tered on  the  accounts  payable  register,  the  date,  number,  vend- 
or's name  and  amount  being  given.  Frequently  a  column  is 


MATERIAL 


27 


VOUCHER    STAMP 

PO.NQ 

INV  NO. 

DATE  REC'D 

PREV    NO. 

PRICE  TERMS  &  EXT  OK 

VEND.    NO. 

QUANTITY  OK 

CHARGE 

APPROVED 

CHARGE 

DATE    PAID 

FREIGHT 

EXHIBIT  12. — Voucher  Stamp. 

provided  for  making  a  record  of  the  number  of  the  voucher 
check  drawn  in  settlement  of  the  invoice.  When  this  plan  is 
followed  the  amount  of  the  outstanding  claims  on  account  of 
purchases  can  readily  be  ascertained  by  listing  all  of  those 
amounts  against  which  no  check  number  appears.  Local  con- 


PETTY   CASH   VOUCHER 

SOUTHERN  MILLS  CORP'N 


No    1 


PAID   TO 


FOR 


DOLLARS 


CENTS 


CHARGE     TO 


SIGNED 


EXHIBIT  13. — Petty  Cash  Voucher. 


28  PROBLEMS  IN  COST  ACCOUNTING 

ditions  must  of  course  be  studied  in  each  plant  in  order  to  as- 
certain just  what  ruling  and  headings  will  be  best  suited  to  meet 
the  needs  of  each  case. 

The  following  example  illustrates  the  method  of  handling 
the  distribution  of  vouchers  on  an  accounts  payable  register. 

Example. — Design  a  columnar  form  of  Accounts  Payable 
Register  for  use  by  a  tanner  who  keeps  the  following  cost  ac- 
counts on  the  general  ledger:  (1)  Raw  Hides,  (2)  Tanning 
Materials,  (3)  Water,  (4)  Supplies,  (5)  Indirect  Expense,  (6) 
Selling  Expense,  and  (7)  Miscellaneous  items. 

Jan.  3,  1917,  Purchased  from  Armour  &  Co.  raw  hides  for. .  $10,000.00 
Jan.  4,  1917,  Purchased  from  Henry  Adams   tanning   ma- 
terials for 1,000.00 

Jan.  5,  1917,  Paid  City  of  Newark  water  bill  of 50 . 00 

Jan.  6,  1917,  Purchased  from  the  Lynn  Trading  Co.  supplies 

for 500.00 

Jan.  6,  1917,  Paid  J.  H.  Lane  Co.  for  sundry  repairs  items 

chargeable  to  indirect  expense 1,500 . 00 

Jan.  7,  1917,  Paid  Phillip  Saunders  &  Son  for  advertising 

service 1,000.00 

Jan.  7,  1917,  Purchas'ed  a  fleshing  machine  from  J.  H.  Pratt 

for 2,000.00 

Jan.  8,  1917,  Purchased  from  Armour  &  Co.  raw  hides  for. .  12,000.00 

Jan.  8,  1917,  Purchased  from  S.  White  &  Co.  supplies  for. . .  500.00 

The  solution  to  this  example  is  presented  in  Exhibit  14, 
which  shows  vouchers  amounting  to  $28,550.00  distributed  un- 
der the  proper  headings. 

Problem  5 

Design  a  columnar  form  of  Accounts  Payable  Distribution 
Book  for  the  use  of  a  worsted  manufacturer  who  keeps  the  fol- 
lowing 15  cost  accounts  on  the  general  ledger:  (1)  Material, 
(2)  Dyestuffs,  (3)  Chemicals,  Soap,  Oil,  Size,  etc.,  (4)  Out- 
work, (5)  Packing  Materials,  (6)  Motive  Power — coal,  oil,  tal- 
low, repairs  to  motor  plant  and  mill  furnishings ;  Repairs  and 
Renewals  to  Machinery — subdivided  as  follows:  (7)  Woolen 


(Q 


«o 


£ 
o 

I 


ul 

£ 


1 

I 


CO 


1 


03 
CM 


'& 

01 

ec 


— 

es 
>. 


£ 

e 
« 

£ 


| 

r\j 


01 


sIV?^^^ 


s 
j5 


» 


I 


CO 


29 


30  PROBLEMS  IN  COST  ACCOUNTING 

Carding  and  Spinning,  (8)  Worsted  Combing  and  Spinning, 
(9)  Weaving,  (10)  Dyeing,  (11)  Finishing,  (12)  Store,  (13) 
Cards,  (14)  New  Plant  and  Machinery,  (15)  Miscellaneous. 

Make  the  necessary  entries  to  record  the  following  informa- 
tion: 

Jan.    3,  1917,  Purchased  from  Merton  Walker  &  Co.,  Invoice 

1,  Material $329.00 

Jan.  4,  1917,  Purchased  from  Dyson,  Milk  &  Co.,  Invoice  2, 
Repairs  to  worsted  combing  and  spinning 
machinery 100 . 00 

Jan.  5,  1917,  Purchased  from  Montague,  Barker  &  Co.,  In- 
voice 3,  material 800.00 

Jan.    8,  1917,  Purchased  from  Chamberlain  &  Son,  Invoice  4, 

Dyestuffs 700.00 

Jan.  9,  1917,  Purchased  from  Dyson,  Milk  &  Co.,  Invoice  5, 
Mill  furnishings  for  worsted,  combing  and 
spinning,  $100;  and  for  dyeing 50.00 

Jan.  10,  1917,  Purchased  from  Wooler,  Flocks  &  Co.,  Invoice  6, 

material 3,000.00 

Jan.  11,  1917,  Purchased  from  Drake,  Williams  &  Son,  In- 
voice 7,  Packing  materials 194 . 00 

Jan.  12,  1917,  Purchased  from  Chamberlain  &  Son,  Invoice  8, 

Dyestuffs 2,010.00 

Jan.  14,  1917,  Purchased  from  Merton  Walker  &  Co.,  Invoice 

9,  Material 4,900.00 

Jan.  15,  1917,  Paid  Broadhurst  &  Williams,  Invoice  10,  for 

work  done  outside  (outwork) 400 . 00 

Jan.  16,  1917,  Purchased  from  Drake,  Williams  &  Son,  In- 
voice 11,  Packing  materials 60 . 00 

Jan.  17,  1917,  Purchased  from  Rutherford,  Martin  &  Co.,  In- 
voice 12,  Coal 635.00 

Jan.  18,  1917,  Purchased  from  Whitehead  &  Sons,  Invoice  13, 

Stationery  (Miscellaneous  Account) 35 . 00 

Jan.  19,  1917,  Purchased  from  Brandam,  Graver  &  Co.,  Mill 
Furnishings,  Invoice  14,  chargeable  to  the 
following  departments: 

Woolen  Carding  and  Spinning 360 . 00 

Weaving. .' 100.00 

Finishing , 550.00 

Store..  150.00 


MATERIAL  31 

Jan.  20,  1917,  Purchased  from  Brandam,  Graver  &  Co.,  In- 
voice 15,  Cards $100.00 

Jan.  22,  1917,  Purchased  from  Haxworth,  Allcott  Co.,  Invoice 

16,  Soap 2,000.00 

Jan.  31,  1917,  Purchased  from  Montague,  Barker  &  Co.,  In- 
voice 17,  Material 8,510.00 

and  new  looms 2,500.00 


CHAPTER  III 
STOCK  RECORD  AND  INVENTORY  FORMS 

Reference  to  the  reports  which  have  been  prepared  by  the 
committees  on  cost  finding  appointed  by  various  trade  associa- 
tions shows  that  a  great  deal  of  importance  is  attached  to  the 
proper  accounting  for  stores.  Since  the  accuracy  of  the  in- 
ventory figures  in  a  business  is  one  of  the  most  important  fac- 
tors in  determining  the  monthly  profit  and  loss  resulting  from 
the  trading  operations,  too  much  attention  cannot  be  given  to 
the  subject  of  stock  records  and  inventory  forms.  There  is 
every  reason  for  exercising  the  same  care  in  accounting  for 
the  stock  as  in  supervising  the  cash,  and  it  should  be  as  difficult 
to  obtain  material  from  the  storekeeper  as  it  is  to  get  cash  from 
the  cashier.  The  stock  record  is  one  of  the  most  important  of 
the  factory  records  and  attention  should  be  directed  toward  its 
design  and  installation  at  the  outset  when  putting  a  cost  system 
into  operation.  It  shows  the  material  received,  material  de- 
livered and  the  balance  on  hand. 

The  rulings  required  on  the  form  for  the  stores  record  do 
not  conform  to  any  one  pattern,  as  they  must  be  designed  to 
meet  the  requirements  which  are  peculiar  to  each  individual 
business.  However,  the  general  practice  is  to  use  a  separate 
sheet  or  card  for  recording  each  kind  of  material,  just  as  a 
separate  ledger  account  is  kept  for  each  customer.  Qn  the  re- 
ceipt side  of  a  typical  stock  record,  columns  are  frequently  pro- 
vided for  the  purchase  order  number,  purchase  invoice  number 
or  material  received  number,  date,  quantity  received,  price  and 
amount,  the  information  being  obtained  either  from  the  pur- 

32 


MATERIAL  33 

chase  order,  invoice  or  report  of  material  received.  On  the  side 
showing  deliveries  columns  are  customarily  provided  for  show- 
ing the  date,  material  requisition  number,  quantity,  price  and 
amount.  The  section  headed  balance  should  provide  for  show- 
ing the  quantity,  price  and  amount.  If  local  conditions  make 
it  advisable  to  use  headings  on  the  stock  record  different  from 
those  mentioned,  forms  should  be  designed  to  meet  the  needs  of 
the  individual  case. 

The  total  value  of  the  stock  on  hand  as  shown  by  summariz- 
ing the  balances  on  each  of  the  stock  record  cards  should  agree 
with  the  balance  that  is  shown  by  the  stores  controlling  account 
on  the  general  ledger.  The  quantity  of  any  item  of  stores  car- 
ried in  stock  as  shown  by  the  stock  record  card  can  readily  be 
verified  by  an  actual  count.  Then  if  the  stock  record  and  the 
count  do  not  agree  steps  can  be  taken  to  ascertain  what  the 
trouble  is.  Accountants  sometimes  make  a  practice  of  dividing 
the  stock  record  up  into  about  twenty-five  sections  and  of  verify- 
ing the  balances  shown  on  the  cards  in  one  of  the  sections  each 
day.  By  this  means  a  check  is  maintained  on  the  receipts, 
deliveries  and  balance  of  stock  on  hand. 

The  operation  of  a  stock  record  and  inventory  system  not 
only  furnishes  a  means  for  obtaining  control  over  the  investment 
in  stores,  but  is  also  a  guide  for  ordering  stock  intelligently.  In 
a  plant  of  sufficient  size  to  need  a  cost  system  there  are  so  many 
items  carried  in  stock  that  it  is  impossible  for  the  stockkeeper 
and  his  assistants  to  observe  and  remember  the  receipts,  issues 
and  balances  of  all  articles  handled  and  so  the  operation  of  a 
stock  record  becomes  absolutely  necessary  in  order  that  the  store- 
house may  be  economically  and  efficiently  administered. 

Several  individual  cases  will  be  considered  for  the  purpose 
of  bringing  out  some  of  the  peculiarities  encountered  in  adapt- 
ing a  stock  record  system  to  meet  the  requirements  of  a  par- 
ticular business. 


34 


PROBLEMS  IN  COST  ACCOUNTING 


STOCK  RECORD  FOR  OSTRICH  FEATHERS 

It  is  very  necessary  to  keep  stock  records  in  an  ostrich  plume 
factory  in  order  to  exercise  the  proper  control  over  the  invest- 
ment in  feathers.  The  feathers  are  costly  and  are  easily  dis- 
posed of  if  stolen.  The  method  of  keeping  a  record  of  the  stock 
of  feathers  in  a  factory  making  ostrich  plumes  is  illustrated  in 
the  following  example : 

Example. — Design  a  Dressed  Goods  Stock  Record  to  be  used 
in  an  ostrich-plume  factory  for  the  purpose  of  keeping  a  record 


DRESSED  GOODS  STOCK    RECORD 

D  E  5  C  R  I  PTION                  (3^&^/£       ^^               /0/2 

RECEIVED 

ISSUED 

DATE 

JOB  No 

ONTITY 

PRICE 

/ 

AMOUNT 

DATE. 

JOB  No 

QUANTITY 

PRICE 

/ 

AMOUNT 

JAN  5 

/ 

/S 

.^0 

/ 

6.00 

JAN  4 

2/0 

IS 
15 

,40 
.42 

/ 
/ 

600 
630 

..  4 

2 

50 

.42 

1 

27-00 

"    4 

230 

35 
IS 

42. 
38 

-/ 

/ 

/4-.  70 
,5  7<3 

-  5 

5 

30 

.38 

/ 

/1  40 

-  5 

240 

15 
20 

36 

,4/ 

v 
/ 

570 

a.  20 

"  6 

6 

20 

.41 

/ 

6.20 

••  6 

245 

20 
20 

.4-4 
44 

^ 
^ 

a.  BO 

8.60 

-6 

10 

40 

44 

J 

17,60 

"  7 

250 

30 
70 

.39 
.39 

^ 
y 

I/.  70 
27.30 

••  7 

15 

100 

.59 

i 

59.00 

-  7 

27 

10 

.37 

370 

EXHIBIT  15. — Dressed  Goods  Stock  Record  for  Use  in  an  Ostrich  Plume 

Factory. 

of  the  dressed  feathers  used  for  sewing  together  into  the  finished 
product,  and  record  the  following  transactions : 

On  Jan.  3,  1917,  the  storekeeper  received  15  "Black  Tops" 
which  were  made  on  Job  1,  at  a  cost  of  $.40  each  for  style  No. 
1012.  Subsequent  transactions  were  as  follows: 

Jan.  4,  1917,  received  50  black  tops  No.  1012  made  on  Job 
2,  at  $.42  each,  and  issued  30  for  Job  210  and  50  for  Job  230. 


MATERIAL  35 

Jan.  5,  1917,  received  30  black  tops  No.  1012  made  on  Job 
5,  at  $.38  each,  and  issued  35  for  Job  240. 

Jan.  6,  1917,  received  20  black  tops  No.  1012,  made  on 
Job  6,  at  $.41  each  and  40  made  on  Job  10,  at  $.44  each.  Is- 
sued 40  for  Job  245. 

Jan.  7,  1917,  received  100  black  tops  No.  1012,  made  on 
Job  15,  at  $.39  each  and  10  made  on  Job  21,  at  $.37  each.  Is- 
sued 100  for  Job  250. 

In  figuring  prices  when  entering  the  quantity  issued  it  is 
the  best  practice  to  assume  that  the  first  lot  received  is  the  first 
one  given  out. 

The  solution  to  this  example  is  given  in  Exhibit  15,  which 
shows  that  there  remain  on  hand  10  Black  Tops  style  E"o.  1012> 
made  on  Job  21,  at  a  total  cost  of  $3.70. 

STORES  RECORD  FOR  PAPER  STOCK 

Printers  and  publishers  use  large  quantities  of  paper  and 
therefore  need  to  keep  stock  records  as  a  means  of  knowing 
what  supply  of  paper  is  on  hand  at  all  times.  Unless  they  keep 
suitable  records  they  cannot  order  intelligently  or  check  up 
the  physical  inventory  of  the  stock  room.  The  requirements 
of  a  stores  record  for  paper  stock  are  presented  in  the  fol- 
lowing problem: 

Problem  6 

Design  a  Stock  Record  and  make  the  necessary  entries  on 
it  to  record  the  following  transactions  for  paper  writing,  flat: 
white,  wove:  16x21,  20-pound  basis  (500  sheets,  one  ream, 
weigh  20  pounds),  which  was  purchased  from  A.  B.  &  Co.  at 
a  contract  price  of  $1.10  per  pound,  which  price  runs  through- 
out the  year  1917. 

Jan.  3,  1917,  Received  from  A.  B.  &  Co.  1000  reams. 
Jan.  4,  1917,  Delivered  5  reams  to  factory  for  Job  1. 
Jan.  10,  1917,  Delivered  150  reams  to  factory  for  Job  7. 


36  PROBLEMS  IN  COST  ACCOUNTING 

Jan.  11,  1917,  Delivered  320  reams  to  factor}-  for  Job  30. 
Jan.  12,  1917,  Delivered  500  reams  to  factory  for  Job  65. 
Feb.    1,  1917,  Received  from  A.  B.  &  Co.  1000  reams. 
Feb.   2,  1917,  Delivered  400  reams  to  factory  for  Job  100. 
Feb.   7,  1917,  Delivered  10  reams  to  factory  for  Job  101. 
Mar.  1,  1917,  Delivered  120  reams  to  factory  for  Job  200. 
Mar.  2,  1917,  Received  from  A.  B.  &  Co.  100  reams. 
Mar.  3,  1917,  Delivered  495  reams  to  factory  for  Job  202. 

Provide  for  showing  the  perpetual  inventory  balance  on 
hand. 

RAW  HIDE  STOCK  RECORD  FOR  INDIVIDUAL  LOTS 

In  business  houses  where  the  stock  is  stored  according  to 
lot  numbers  it  is  necessary  to  keep  the  stock  records  so  that 
they  will  show  the  condition  of  each  lot  separately.  A  special 
form  of  ruling  on  the  stock  record  is  often  used  to  meet  this 
condition.  The  method  of  operation  will  be  understood  from 
an  explanation  of  the  Raw  Hide  Stock  Record  used  in  a  tan- 
nery as  presented  in  the  following  example: 

Example. — Devise  a  form  suitable  for  keeping  a  stock  record 
of  raw  hides  in  a  tannery.  In  a  tannery  the  hides  are  not 
graded  until  they  are  tanned;  they  are  simply  given  lot  num- 
bers when  received,  and  when  the  hides  are  issued  from  the 
stock  room  to  the  tannery  the  lot  number  is  indicated  on  each 
requisition.  Make  the  necessary  entries  to  record  the  follow- 
ing information: 

Received  on  Jan.  3,  1917,  Lot  1  from  Armour  &  Co.  12,000 
pounds  of  native  steer  hides  at  $.25  per  pound.  Lot  2  from 
Sulsberger  Sons  &  Co.  20,000  pounds  of  native  steer  hides  at 
$.30  per  pound.  Lot  3  from  J.  H.  Allen  &  Co.  15,000  pounds 
of  native  steer  hides  at  $.35  per  pound. 

Jan.  3,  1917,  delivered  on  Requisition  1,  1,000  pounds  of 
raw  hides  from  Lot  1;  on  Requisition  2,  5,000  pounds  from 
Lot  '1 ;  and  on  Requisition  3,  6,000  pounds  from  Lot  1. 


RAV  HIDE  STOCK  RECORD 

DESCRIPTION   92&&^  jz/fax^  5ffi^*&^ 

RECEIVED 

DATE 

LOT       VENDOR 

POUNDS 

PRICE 

AMOUNT 

/  9  I  7 
Qa*is3 

1      ^2>??U?U4^  %S&<T 

/20CC 

25 

docc 

£j 

^      Q^^^^^e^^^y^i, 

20.000 

30 

(oocc 

"     J 

c3  £.%%  a/?/^- 

/6~  000 

35 

5250 

IS5UED 

DATE 

ITEM 

LOT   1 

LOT  2, 

LOT  3 

BALANCE 

FT// 

0«^  3 

Q^efs:   / 

t-  e>s. 

/  occ 

L.  E>£> 

<-  e  3     j 

*/4.ooc 

-    3 

'    /^ 

"        2 

SOOO 

/2J5C 

"    3 

:    3 

6  oco 

I/.250 

"  -4 

,    4 

1 

6000 

375C 

"    6" 

:    6 

\ 

6000 

6250 

"  4" 

:     6 

2000 

7650 

"   J~ 

7 

2000 

7050 

"  6 

?       8 

2000 

6450 

"  6 

9 

2000 

5850 

"  7 

/^ 

1 

2000 

5250 

:  7 

"      // 

/ 

5000 

3  $00 

"   7 

"      /2 

/ 

5000 

17  50 

"  6 

"       /3 

/ 

5000 

0 

1 

/ 

/ 

/ 

1 

/ 

/ 

/ 

TOTAL- 

12CCC 

20000 

/500C 

•• 

as^^ 

EXHIBIT  16.— Raw  Hide  Stock  Record  for  Individual  Lots. 

37 


38 

Jan.  4,  1917,  delivered  on  Requisition  4,  5,000  pounds  from 
Lot  2. 

Jan.  5,  1917,  delivered  on  Requisition  5,  5,000  pounds  from 
Lot  2 ;  on  Requisition  6,  2,000  pounds  from  Lot  2 ;  and  on 
Requisition  7,  2,000  pounds  from  Lot  2. 

Jan.  6,  1917,  delivered  on  Requisition  8,  2,000  pounds 
from  Lot  2 ;  and  on  Requisition  9,  2,000  pounds  from  Lot  2. 

Jan.  7,  1917,  delivered  on  Requisition  10,  2,000  pounds 
from  Lot  2;  on  Requisition  11,  5,000  pounds  from  Lot  3;  and 
on  Requisition  12,  5,000  pounds  from  Lot  3. 

Jan.  8,  1917,  delivered  on  Requisition  13,  5,000  pounds 
from  Lot  3. 

After  each  entry  show  the  inventory  value  of  the  balance 
on  hand. 

The  solution  to  this  example  is  presented  in  Exhibit  16, 
which  shows  that  all  of  each  lot  has  been  given  out  and  that 
there  is  no  balance  left  on  hand. 

STOCK  RECORD  FOR  CANDIED  CITRON 

Manufacturers  of  food  products,  such  as  candied  citron  or 
orange  peel,  need  a  stock  record  which  will  show  the  quantities 
received  and  issued  by*  individual  lots,  as  well  as  the  balance 
on  hand.  The  following  problem  is  taken  from  the  candied 
citron'  business : 

Problem  7 

Design  a  Stock  Record  for  a  business  handling  merchan- 
dise by  individual  lots.  Then  make  the  necessary  entries  on 
the  Stock  Record  for  recording  the  following  transactions: 

CANDIED  CITRON,  10-LB.  BOXES,  20  TO  CASE 

Jan.  1,  1917,  Received  Lot  1,  29,000  Ibs.  of  candied  citron  in  10-lb. 
boxes,  20  boxes  to  a  case,  at  $ .  07  per  Ib. 


MATERIAL  39 

Jan.    2,  1917,  Delivered  from  Lot  1,  10,000  Ibs.  candied  citron  to  Akron 

Supply  Co. 
Jan.    3,  1917,  Delivered  from  Lot  1,  7,000  Ibs.  candied  citron  to  A.  &  B. 

Co. 
Jan.    4,  1917,  Delivered  from  Lot  1,  12,000  Ibs.  candied  citron  to  the 

Standard  Manufacturing  Co. 
Jan.    5,  1917,  Received  Lot  7,  6,000  Ibs.  of  candied  citron  in  10-lb.  boxes, 

20  boxes  to  a  case,  at  $.06%  per  Ib. 
Jan.    6,  1917,  Delivered  from  Lot  7,  1,000  Ibs.  candied  citron  to  James 

&  Son. 
Jan.    6,  1917,  Delivered  from  Lot  7,  5,000  Ibs.  candied  citron  to  the 

W.  &  B.  Co. 
Jan.    8,  1917,  Received  Lot  10,  40,000  Ibs.  of  candied  citron  in  10-lb. 

boxes,  20  boxes  to  a  case,  at  $.'0734  per  Ib. 
Jan.    9,  1917,  Delivered  from  Lot  10,  5,000  Ibs.  of  candied  citron  to  the 

W.  A.  &  S.  Co. 
Jan.  10,  1917,  Received  Lot  11,  1,000  Ibs.  of  candied  citron  at  S.07M 

per  Ib. 
Jan.  10,  1917,  Returned  Lot  11  to  vendor,  as  it  was  not  up  to  the  standard 

of  quality. 


In  all  stock  records  it  is,  as  we  have  already  explained, 
essential  that  the  chief  storekeeper  should  know  how  much  of 
a  given  stock  is  on  hand  at  all  times.  In  order  to  reduce  the 
clerical  work  involved  in  keeping  stock  records  so  as  to  give 
this  information,  the  plan  is  sometimes  followed  of  requiring 
the  stock  record  clerk  to  record  the  balance  of  stores  only 
after  each  fourth  entry  of  stock  issued.  The  method  of 
operation  will  readily  be  understood  from  the  following  ex- 
ample : 

Example. — Design  a  Stock  Record  and  make  the  necessary 
entries  on  it  to  record  the  following  transactions : 

The  articles  to  be  kept  track  of  are  8-inch  half  round  files 
which  are  kept  on  shelf  6  in  rack  12.  The  maximum  quantity 
to  be  kept  in  stock  is  5,000  and  the  minimum  1,000. 


40     PROBLEMS  IN  COST  ACCOUNTING 

Jan.  3,  1917,  Ordered 4,000 

"  4,  "      Received 4,000 

"  4,  "      Delivered 500 

«  5,  «             «         600 

«  5,  "             «         400 

"  6,  B             "         1,500 

a  6,  "      Balance  on  hand 1,000 

"  7,  "      Ordered 4,000 

a  8,  "      Received 2,000 

«  8,  "             a        2,000 

a  11,  "      Delivered 1,000 

«  11,  "             " 1,000 

«  12,  «             «         500 

«  12,  "             "         1,000 

"  12,  a      Balance  on  hand 1,500 

"  13,  "      Ordered 4,000 

*  14,  «      Received 1,000 

«  15,  «             "        3.000 

B  16,  «      Delivered 1,000 

«  17,  "             «        2,000 

«  17,  «             «        2,000 

«  17,  «             «         500 

"  18,  "      Balance  on  hand 0 

The  company  purchased  all  files  on  a  contract  which  called 
for  8-inch  half  round  files  being  delivered  at  $7.20  per  gross. 
The  solution  is  presented  in  Exhibit  17. 

Problem  8 

Design  a  Stock  Record  and  make  the  necessary  entries  on 
it  to  record  the  following  transactions: 

The  articles  to  be  kept  track  of  are  camel's  hair  brushes, 
No.  3132,  which  are  kept  on  rack  10.  The  brushes  are  bought 
on  contract  at  $.273  each.  The  maximum  quantity  of  brushes 
to  be  kept  in  stock  is  600  and  the  minimum  quantity  100. 

Jan.  3,  1917,  Ordered 500 

*  4,     "      Received 500 

"  5,     "      Delivered 100 

"  0,     "  "  100 


PERPETUAL  INVENTORY 

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42  PEOBLEMS  IN  COST  ACCOUNTING 

Jan.    7,  1917,  Delivered 100 

«      8,     "  "         100 

u      8,     "      Balance  on  hand 100 

"      8,     "      Ordered 500 

*    10,     "      Received 500 

"     11,     "      Delivered 100 

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"    14,    "      Balance  on  hand 200 


UPPER  LEATHER  RECORD 

In  a  shoe  factory  it  is  necessary  to  use  an  upper  leather 
stock  record  which  will  show  the  results  obtained  from  cutting 
each  lot  of  leather  purchased. 

It  may  be  that  the  cutting  of  the  leather  is  done  economically 
while  the  purchasing  is  inefficiently  done,  or  the  reverse  may 
be  the  case.  The  shoe  manufacturer  wants  to  know  the  facts 
and  consequently  a  special  record  is  required  as  illustrated  in 
the  following  example: 

Example. — Devise  an  Upper  Leather  Record  for  a  shoe  fac- 
tory and  make  the  necessary  entries  on  it  to  record  the  follow- 
ing information : 

On  Jan.  3,  1917,  161  sq.  ft.  of  calfskin  at  $.22  per  sq.  ft. 
were  purchased  from,  the  J.  S.  Lawson  Tannery,  designated  as 
Lot  1. 

On  Jan.  4,  cutter  John  Ellison  reported  on  slip  Y  that  he 
used  40  sq.  ft.  of  calfskin  from  Lot  1  for  Goodyear  welt  shoes 
estimated  to  require  42  sq.  ft.  at  an  estimated  price  of  $.22 
per  sq.  ft. 

On  Jan.  5,  cutter  David  Henderson  reported  on  slip  24 
that  he  used  41  sq.  ft.  of  calfskin  from  Lot  1  for  Goodyear 
welt  shoes  estimated  to  require  43  sq.  ft.  at  an  estimated  cost 
of  $.20  per  sq.  ft. 


43 


44  PROBLEMS  IN  COST  ACCOUNTING 

On  Jan.  6,  cutter  Henry  Wilson  reported  on  slip  71  that 
he  used  39  sq.  ft.  of  calfskin  from.  Lot  1  for  Goodyear  welt 
shoes  estimated  to  require  41  sq.  ft.  at  an  estimated  cost  of 
$.19  per  sq.  ft. 

On  Jan.  10,  cutter  Frank  Brown  reported  on  slip  107  that 
he  used  41  sq.  ft.  of  calfskin  from  Lot  1  for  Goodyear  welt 
shoes  estimated  to  require  43  sq.  ft.  at  an  estimated  cost  of 
$.19  per  sq.  ft. 

Show  the  loss  or  gain  in  cost  of  leather  used  as  compared 
with  the  estimated  cost. 

Show  the  balance  on  hand  in  feet  and  amount. 

What  conclusions  do  you  draw  from  the  results  shown  in 
cutting  Lot  1  ?  Was  the  cutting  done  carefully,  or  were  the 
cutters  wasteful?  Was  the  purchasing  done  in  an  efficient 
manner  ? 

The  solution  to  this  example  is  presented  in  Exhibit  18 
which  shows  that  the  cutting  was  efficiently  done  but  that  the 
purchasing  was  inefficiently  done. 

Problem  9 

Devise  an  Upper  Leather  Record  for  a  shoe  factory  and 
make  the  necessary  entries  on  it  to  record  the  following  infor- 
mation : 

On  Jan.  3,  1917,  200  sq.  ft.  of  calfskin  at  $.25  per  sq.  ft. 
were  purchased  from  the  A.  B.  Tannery,  designated  as  Lot  2. 

On  Jan.  4,  cutter  Martin  Little  reported  on  slip  70  that 
he  used  50  sq.  ft.  of  calfskin  from  Lot  2  for  Goodyear  welt 
shoes  estimated  to  require  48  sq.  ft.  at  an  estimated  price  of 
$.27  per  sq.  ft. 

On  Jan.  5,  cutter  Arthur  Sandford  reported  on  slip  71 
that  he  used  52  sq.  ft.  of  calfskin  from  Lot  2  for  Goodyear 
welt  shoes,  estimated  to  require  50  sq.  ft.  at  an  estimated  price 
of  $.28  per  sq.  ft. 


MATERIAL  45 

On  Jan.  6,  cutter  Robert  Mclntyre  reported  on  slip  72 
that  he  used  53  sq.  ft.  of  calfskin  from  Lot  2  for  Goodyear 
welt  shoes,  estimated  to  require  50  sq.  ft.  at  an  estimated  price 
of  $.27  per  sq.  ft. 

On  Jan.  7,  cutter  Arthur  Hyer  reported  on  slip  73  that 
he  used  45  sq.  ft.  of  calfskin  from  Lot  2  for  Goodyear  welt 
shoes,  estimated  to  require  44  sq.  ft.  at  an  estimated  price  of 
$.28  per  sq.  ft. 

Show  the  loss  or  gain  in  cost  of  leather  used  as  compared 
with  the  estimated  cost. 

•Show  the  balance  on  hand  in  feet  and  amount. 

What  conclusions  do  you  draw  from  the  results  shown  in 
cutting  Lot  2  ?  Was  the  cutting  done  carefully  or  were  the 
cutters  wasteful?  Was  the  purchasing  done  in  an  efficient 
manner  ? 

PHYSICAL  INVENTORY  FORMS 

In  commercial  houses  it  is  the  practice  to  take  a  physical 
inventory  of  the  stock  on  hand  at  certain  periods.  This  is  a 
very  valuable  and  necessary  precaution,  because  during  the 
interval  between  two  such  physical  inventories  the  records  form- 
ing a  perpetual  inventory  may  have  diverged  slightly  from 
actual  conditions.  There  may  have  been  some  clerical  errors, 
misplaced  goods,  or  goods  lost.  Consequently  a  periodic  physi- 
cal inventory  gives  the  best  basis  for  reconciling  the  book  ac- 
counts with  actual  conditions,  and  enables  the  proper  closing 
of  the  books  and  the  beginning  of  a  new  period  with  accurate 
information. 

Problem  10 

Design  a  form  for  an  Inventory  of  Parts. 
The  inventory  was  taken  at  the  close  of  business  on  Dec. 
31,  1916,  and  was  as  follows: 


46  PROBLEMS  IN  COST  ACCOUNTING 

Part  2431,  Shackle,  4,000  at $.30  ea. 

Part  5443,  Long  Jaw,  7,250  at 21  " 

Part  5443,  Short  Jaw,  10,010  at 15  " 

Part  5445,  Lever,  24,050  at 05  « 

Part  5446,  Link,  16,000  at 07  " 

Part  5448,  Rivet,  4,000  at 01  " 

Part  5450,  Spring  Holder  Assembly,  9,000  at.     .42  " 

Part  5452,  Post,  11,820  at 01  " 

Part  5453,  Stop,  14500  at 03  " 

Part  5473,  Spring,  17000  at 03  " 

Part  5476,  Washer,  1,500  at 01  " 

The  inventory  was  taken  by  A.  Smith,  priced  by  B.  Jones, 
extended  by  A.  Crater,  and  checked  by  F.  Ayres. 

Problem  11 

Design  an  Inventory  Sheet  suitable  for  furnishing  a  com- 
plete check  on  extensions  by  means  of  a  coupon  on  the  right- 
hand  margin  containing  an  extra  column  for  the  extensions. 

The  plan  of  operation  is  as  follows :  The  coupon  which 
contains  an  additional  column  for  extensions  can  be  detached 
from  the  main  body  of  the  inventory  sheet  by  means  of  per- 
forations. Extensions  are  first  made  on  the  coupon,  after  which 
it  is  detached.  Then  extensions  are  again  made  on  the  main 
body  of  the  inventory  sheet,  after  which  the  footings  to  both 
the  extensions  on  the  coupon  and  the  main  body  of  the  sheet 
are  compared. 

The  sheet  number  appears  on  both  the  coupon  and  the  main 
body  of  the  inventory  form.  In  addition  to  the  sheet  number 
the  upper  part  of  the  inventory  form  should  provide  for  enter- 
ing the  following  information — date,  department,  location, 
called  by,  sheet  extended  by,  entered  by,  strip  extended  by, 
priced  by,  and  examined  by.  The  sheet  has  columns  which 
contain  the  following  headings:  Stock  number,  description, 
quantity,  unit,  price  and  (1)  extension,  (2)  extension. 


MATEEIAL  47 

Make  the  necessary  entries  together  with  extensions  on  the 
inventory  form  to  record  the  following  information : 

Linoleum,  56}^  yards  @  48%  c. 
Gingham,  125%  yards  @  I3%c. 
Sugar,  13  barrels  (4,375  Ibs.  @  $4.92^  cwt.) 
Drafting  paper,  276  sheets  (68  Ibs.  @  16^c.  Ib.) 
Scantling,  3"  X  5"  X  14',  374  pcs.  @  $32.75  per  M. 
Sq.  Hd.  machine  bolts,  %  X  2^,  432  pcs.  @  $2. 72  per  C. 
less  65/10/10/5. 


CHAPTER  IV 
STORES  REQUISITIONS  AND   REPORTS 

It  is  generally  recognized  as  a  fundamental  principle  of 
good  stores  management  that  a  written  record  should  be  made 
and  preserved  showing  all  stock  issued  from  the  storehouse  dur- 
ing each  period.  The  plan  most  commonly  adopted  for  obtain- 
ing a  record  of  stock  issued  is  to  employ  a  stores  requisition 
form  which  is  used  whenever  stock  is  obtained  from  the  store- 
keeper and  is  made  out  by  the  department  requiring  material, 
supplies  or  equipment.  It  should  be  dated  and  numbered,  and 
show  in  detail  the  quantity  of  each  item  wanted.  The  requisi- 
tion should  be  approved  by  someone  in  authority  and  signed 
by  the  person  receiving  the  material.  There  should  be  no  pos- 
sible means  whereby  anyone  can  obtain  stock  without  a  properly 
approved  requisition.  When  in  duplicate,  the  requisition  not 
only  serves  as  a  receipt  to  the  storekeeper  for  the  stock  delivered 
but  also  furnishes  the  necessary  information  for  entries  to  be 
made  by  the  stock  record  clerk  on  the  issued  side  of  the  perpetual 
inventory. 

Reference  to  the  following  example  shows  how  a  typical 
requisition  on  a  storekeeper  should  be  prepared. 

Example. — Design  a  Requisition  on  Storekeeper  to  be  used 
by  a  machine  shop  and  make  the  necessary  entries  on  it  to 
record  the  following  information : 

On  Jan.  3,  1917,  the  foreman  of  the  assembly  department 
made  out  requisition  No.  1  on  storehouse  No.  1  for  the  following 
parts : 

48 


MATERIAL 


49 


Part  2431,  Shackle,  1,000  at $.30  ea. 

Part  5443,  Long  Jaw,  1,250  at 21  a 

Part  5445,  Lever,  4,050  at 05  " 

Part  5446,  Link,  6,000  at 07  " 

Part  5448,  Rivet,  1,000  at 01  B 

Part  5450,  Spring  Holder,  4,000  at 42  " 

Part  5473,  Stop,  4,500  at , 03  « 

The  requisition  was  for  Job  75  and  was  signed  by  Philip 
Hammond,  foreman. 

The  solution  to  this  example  is  given  in  Exhibit  19.     It 


REQUISITION    ON    STOREKEEPER         No  1 

STOREHOUSE,    No  L                                                       DATE.  $a*is3.J3ij^_ 

DESCRIPTION 

QUANTITY 

Unrr 

PRICE 

AMOUNT 

TOTAL 

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EXHIBIT  19. — Kequisition  on  Storekeeper. 

will  be  noted  that  the  stock  requisitioned  for  Job  75  amounted 
to  $3,010. 

In  textile  mills  it  is  quite  a  common  practice  to  make  use 
of  stores  requisitions  in  giving  out  yarn.  The  information  re- 
quired on  the  requisition  is  given  in  the  next  problem. 

Problem  12 

Design  a  requisition  on  storekeeper  to  be  used  in  a  textile 
mill  and  make  the  necessary  entries  on  it  to  record  the  follow- 
ing information: 


50  PROBLEMS  IN  COST  ACCOUNTING 

On  Jan.  5,  1917,  the  overseer  of  the  weaving  depart- 
ment made  out  requisition  No.  10  on  storehouse  No.  5  for  the 
following  quantities  of  yarn:  No.  24  warp  yarn,  4,000  pounds 
at  $.22  per  pound;  No.  26  warp  yarn,  3,500  pounds  at  $.23i/2 
per  pound;  No.  28  warp  yarn,  2,200  pounds  at  $.2414  per 
pound;  No.  30  filling  yarn,  4,100  pounds  at  $.26  per  pound; 
No.  32  filling  yarn,  2,000  pounds  at  $.281,4  per  pound;  No. 
34  filling,  yarn,  3,100  pounds  at  $.301/0  per  pound;  and  No. 
2/30  skein  yarn,  1,000  pounds  at  $.30  per  pound. 

The  requisition  was  signed  by  John  Lennon,  overseer. 

LEATHER  CUTTING  SLIP 

It  often  happens  that  it  is  desirable  to  combine  a  record 
of  stock  issued  from  the  storehouse  with  certain  statistical  in- 
formation. Thus,  in  a  shoe  factory  the  manager  wants  to  know 
whether  the  upper  leather  reported  on  each  slip  has  been  cut 
efficiently  or  not.  It  has  frequently  been  said  that  careless 
cutters  can  throw  all  of  the  profits  under  their  benches.  The 
problem  in  designing  a  leather  cutting  slip  which  will  meet 
the  requirements  of  a  shoe  factory  is  presented  in  the  follow- 
ing example. 

Example. — Design  a  Leather  Cutting  Slip  for  use  as  a 
requisition  .in  a  shoe  factory  and  make  the  necessary  entries 
on  it  to  record  the  following  information : 

The  skins  were  issued  from  the  stock  room  on  Jan.  3,  1917, 
at  9  A.  M.  and  the  unused  parts  were  returned  at  5  p.  M. 

Cutter  Henry  Adams,  No.  5,  reported  on  Slip  No.  1  that 
he  had  cut  the  following  patterns  from  calfskin  purchased 
from  the  J.  S.  Pratt  Tannery  Co. 

For  Case  No.  1,  pattern  500,  grade  A,  24  pairs  of  Good- 
year welt  shoes  were  cut  from  Lot  2,  number  of  feet  estimated 
to  be  required  being  48,  at  $.20  per  sq.  ft. 


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52  PROBLEMS  IN  COST  ACCOUNTING 

For  Case  No.  2,  pattern  600,  grade  A,  24  pairs  of  Goodyear 
welt  shoes  were  cut  from  Lot  2,  number  of  feet  estimated 
to  be  required  being  50,  at  $.20  per  sq.  ft. 

For  Case  No.  3,  pattern  700,  grade  B,  24  pairs  of  Goodyear 
welt  shoes  were  cut  from  Lot  2,  number  of  feet  estimated  to  be 
required  being  52,  at  $.20  per  sq.  ft. 

For  Case  No.  4,  pattern  800,  grade  C,  24  pairs  of  Goodyear 
welt  shoes  were  cut  from  Lot  2,  number  of  feet  estimated 
to  be  required  being  54,  at  $.20  per  sq.  ft. 

The  number  of  feet  issued  from  the  stock  room  was  300 
and  the  number  returned  100.  The  price  of  the  stock  in  the 
lot  used  was  $.22  per  sq.  ft. 

Show  the  "Cutting  loss  or  gain  in  feetage  (square  feet)" 
and  the  "Cutting  loss  or  gain  in  amount"  for  the  leather  used 
on  the  requisition  from  Lot  2. 

The  requisition  was  signed  by  the  following:  Stock  clerk, 
posting  clerk  and  cutter. 

The  solution  is  given  in  Exhibit  20  and  shows  that  there 
was  a  gain  of  4  square  feet  in  cutting  and  a  loss  of  $3.20 
in  amount. 

Problem  13 

Design  a  Leather  Cutting  Slip  to  be  used  as  a  requisition 
in  a  shoe  factory  and  make  the  necessary  entries  on  it  to  record 
the  following  information: 

The  skins  were  issued  from  the  stock  room  on  Jan.  5, 
1917,  at  8.30  A.  M.  and  the  unused  parts  were  returned  at  5.30 
p.  M. 

Cutter  Everett  Hatter,  No.  21,  reported  on  Slip  No.  510 
that  he  had  cut  the  following  patterns  from  calfskin  purchased 
from  the  Akron  Tannery : 

For  Case  No.  11,  pattern  1,000,  grade  C,  24  pairs  of  Good- 
year welt  shoes  were  cut  from  Lot  5,  number  of  feet  estimated 
to  be  required  being  50,  at  $.24  per  sq.  ft. 


MATERIAL  53 

For  Case  No.  12,  pattern  1,100,  grade  C,  24  pairs  of  Good- 
year welt  shoes  were  cut  from  Lot  5,  number  of  feet  estimated 
to  be  required  being  52,  at  $.24  per  sq.  ft. 

For  Case  No.  13,  pattern  1,200,  grade  B,  24  pairs  of  Good- 
year welt  shoes  were  cut  from  Lot  5,  number  of  feet  estimated 
to  be  required  being  54,  at  $.24  per  sq.  ft. 

For  Case  No.  14,  pattern  1,300,  grade  A,  24  pairs  of  Good- 
year welt  shoes  were  cut  from  Lot  5,  number  of  feet  estimated 
to  be  required  being  56,  at  $.24  per  sq.  ft. 

The  number  of  feet  issued  from  the  stock  room  was  270 
and  the  number  returned  50.  The  price  of  the  stock  in  the 
lot  used  was  $.22  per  sq.  ft. 

Show  the  "Cutting  loss  or  gain  in  feetage"  and  the  "Cutting 
loss  or  gain  in  amount"  for  the  leather  used  on  the  requisition 
from  Lot  5. 

The  requisition  was  signed  by  the  stock  clerk,  posting  clerk 
and  cutter. 

RAW  MATERIAL  REPORT 

In  some  industries  it  is  necessary  to  have  a  raw  material 
report  prepared  at  regular  intervals  to  show  how  much  stock 
has  been  put  into  process  of  manufacture.  In  case  by-products 
are  produced  they  should  also  be  reported.  It  is  of  the  utmost 
importance  that  such  a  report  be  prepared  carefully,  as  it  forms 
the  basis  for  making  entries  on  the  cost  records. 

The  information  which  should  be  given  on  a  Raw  Material 
Report  for  a  prepared  coconut  factory  is  presented  in  the  next 
example : 

Example. — Prepare  a  Raw  Material  Report  for  a  continu- 
ous process  food  factory  manufacturing  prepared  coconut. 
Period  covered  by  report  week  ending  January  8,  1917. 

Raw  Meat  Department. — There  were  put  into  process  the 
following  coconuts:  From  Lot  1,  10,000  select  Ruatang  at 


PKOBLEMS  IN  COST  ACCOUNTING 


$25.00  per  1,000;  from  Lot  25,  734,000  select  Ruatans  at 
$25-.00  per  1,000;  from  Lot  121,  75,000  culls  at  $17.50  per 
1,000;  and  from  Lot  200,  143,000  sprouts  at  $18.50  per  1,000. 
The  following  by-products  resulted  from  the  manufactur- 
ing operations:  2,000  bags  at  $.10  each;  11,500  Ibs.  of  junk 
at  $.01  per  lb.;  600  Ibs.  of  rancids  at  $.02  per  lb.;  7,000  Ibs. 


RAW    MATERIAL    REPORT 

TOR      CfaxSt'    &K^r^                     ENDLD         Q-aw.    ?                             \9\7 

LOT  NO 

QUANTITY 

UNIT 

DCSCRlPTION 

PRICE 

AMOUNT 

TOTAU 

/ 

10 

M 

SELECT   RUATANS 

25.00 

250 

00 

25 

734 

>' 

. 

" 

18 

350 

00 

121 

75 

» 

CULL-5 

17.50 

/ 

3/2 

50 

200 

/43 

» 

SPROUTS 

IQ.50 

2 

645 

50 

22 

5SQ 

00 

LL5S     BY     PRODUCTS 

2.000 

EA. 

BAGS 

.10 

200 

00 

I/.500 

LB. 

JUNK 

.01 

//5 

00 

600 

,, 

RANCIDS 

D2 

/2 

00 

7000 

^ 

ROTS     SHAVINGS 

.0/1 

77 

00 

s 

TON 

SHELLS 

5.00 

25 

00 

429 

00 

NET     RAW    MEAT 

22 

129 

00 

100 

GAl 

GLYCER-INE 

.65 

65 

00 

1415 

C 

SALT 

/.DO 

I 

y/s 

00 

1200 

RBI 

SUGAR 

4.25 

6 

/OO 

00 

6 

580 

00 

TOTAL    MATERIAL 

28 

709 

00 

EXHIBIT  21. — Raw  Material  Report. 

of  rots  and  shavings  at  $.011  per  lb. ;  and  5  tons  of  shells  at 
$5.00  per  ton. 

Dried  Meat  Department. — In  addition  to  the  material  used 
in  the  raw  meat  department  the  following  items  were  used  in 
the  dried  meat  department:  100  gallons  glycerine  at  $.65  per 
gallon,  141,500  Ibs.  of  salt  at  $1.00  per  100  Ibs.,  and  1,200 
bbls.  of  sugar  at  $4.25  per  bbl. 

The  solution  is  given  in  Exhibit  21,  and  shows  that  the 


MATERIAL  55 

total  material  chargeable  against  the  cost  of  manufacture  was 
$28,709.00. 

In  a  textile  mill  it  is  also  necessary  to  keep  a  record  of 
the  raw  material  used  and  by-products.  The  information  re- 
quired is  presented  in  the  following  problem: 

Problem  14 

Design  a  form  for  a  Report  of  Cotton  Opened  to  be  used 
in  a  textile  mill  and  make  the  necessary  entries  on  it  to  record 
the  following  information.  Period  covered  by  the  report, 
week  ending  Jan.  8,  1917. 

The  following  bales  were  opened:  Wool,  bale  No.  1044, 
300  pounds  at  $1.00  per  pound;  bale  No.  540,  295  pounds  at 
$.80  per  pound.  Cotton,  bale  No.  310,  500  pounds  at  $.16 
per  pound,  was  opened,  and  shoddy  bale  No.  402,  500  pounds 
at  $.08  per  pound,  was  also  opened. 

The  following  waste  was  reported:  130  pounds  of  card 
waste  worth  $.10  per  pound,  75  pounds  spinning  waste  worth 
$.06  per  pound,  and  15  pounds  of  colored  waste  worth  $.04^ 
per  pound. 


CHAPTER  V 
MATERIAL  COST  CALCULATIONS 

In  order  to  arrive  at  the  cost  of  manufacture  the  accountant 
frequently  finds  it  necessary,  at  the  outset,  to  make  a  more  or 
less  difficult  calculation  of  the  cost  of  material.  The  follow- 
ing are  some  of  the  problems,  with  which  he  must  deal. 

When  a  material  used  by  a  manufacturer  is  not  simply  pur- 
chased from  someone  else,  but  is  drawn  from  a  resource  owned 
by  the  manufacturer,  an  interesting  problem  in  costs  arises. 
Suppose  the  resource  be  a  stretch  of  timber  land,  a  quarry  or 
a  clay  bank.  The  cutting  of  trees,  the  quarrying  of  stone  or 
the  digging  of  clay  each  has  its  own  peculiar  problem  and  the 
manufacturer  must  calculate  the  cost  of  cutting,  quarrying  or 
digging  and  also  estimate  the  depreciation  of  his  source  of 
material  before  he  can  place  a  value  on  the  material  which 
enters  into  his  finished  article. 

Another  group  of  problems  arise  from  the  grading  of  ma- 
terials. In  case  a  manufacturer  finds  it  necessary  to  grade 
material  into  different  lots  before  it  can  be  used,  it  is  necessary 
to  establish  a  scale  of  values  for  the  different  grades.  Further- 
more, it  frequently  happens  that  several  grades  of  materials 
are  so  mixed  together  that  it  is  necessary  to  ascertain  the  aver- 
age cost  of  the  mixture  per  unit  on  the  one  hand,  or  to  calculate 
in  what  proportions  material  at  different  prices  should  be  com- 
bined in  order  to  obtain  a  mixture  which  will  cost  a  certain 
amount  per  unit,  on  the  other  hand. 

By-products  give  variations  to  the  problems  of  material  cost. 
When  the  material  is  of  such  character  that  a  portion  only  is 

56 


MATERIAL  57 

suitable  for  manufacture  into  the  regular  product  of  the  estab- 
lishment the  other  portions  in  the  form  of  scraps,  cuttings  and 
inferior  grades  can  be  considered  as  by-products.  Then  the 
costs  accountant  must  regard  the  usable  or  salable  value  of  these 
products  as  an  offset  to  the  initial  cost  of  the  material. 

Other  problems  arise  from  shortage  and  wastage  of  mate- 
rials in  fabrication.  In  some  industries  the  material  used  fre- 
quently undergoes  a  change  in  weight  due  to  atmospheric  con- 
ditions, manufacturing  processes  or  other  causes.  It  is  there- 
fore necessary  to  take  into  consideration  the  loss  or  gain  in 
weight  in  making  the  cost  calculations.  Certain  materials  shrink 
in  length,  due  to  the  "take-up"  sustained  during  the  manufac- 
turing operations.  When  this  is  the  case  the  shrinkage  or  con- 
traction must  be  considered  in  the  calculation  of  cost.  In  some 
lines  of  manufacture  there  is  an  invisible  loss  going  on  all  the 
time,  an  allowance  for  which  must  of  course  be  made  when 
figuring  the  cost  of  production. 

Furthermore,  it  frequently  happens  that  an  allowance  has 
to  be  made  at  the  same  time  for  several  factors  which  affect 
the  cost  of  material.  Thus,  in  figuring  the  cost  of  material 
required  for  making  silk  fabrics,  an  allowance  has  to  be  made 
not  only  for  take-up  in  twisting  but  also  for  waste  produced 
during  the  manufacturing  process.  Special  problems  in  con- 
nection with  grading  material,  waste,  by-products,  yield  and 
shrinkage  are  encountered  in  almost  endless  variety  and  in 
various  combinations.  Reference  to  the  following  cases  will 
show  how  some  of  the  problems  mentioned  above  are  handled 
in  actual  practice. 

COST  OF  TIMBER  PER  TON  OF  GROUND  PULP 

When  natural  resources  are  depleted  for  the  purpose  of 
obtaining  a  supply  of  raw  material  for  manufacturing  purposes, 


58 


PKOBLEMS  IN  COST  ACCOUNTING 


it  is  necessary  to  make  a  calculation  not  only  of  the  operation 
cost  to  extract  the  material  but  also  of  the  cost  incident  to  the 
exhaustion  of  the  property.  The  cutting  of  timber  from  forest 
lands  to  obtain  wood  necessary  for  the  manufacture  of  ground 
pulp  used  in  making  paper  furnishes  an  especially  good  illus- 
tration of  the  necessity  for  figuring  the  wasting  of  the  asset 
as  an  item  of  cost.  The  practice  among  timber  owners  is  to 
make  an  estimate  of  the  loss  in  value  sustained  by  forest  land 
because  of  the  cutting  of  the  trees  and  leaving  only  stumps. 
It  is  customary  in  the  trade  to  make  what  is  termed  a  "stump- 
age  charge"  to  cover  this  shrinkage  in  the  value  of  the  timber 
land.  A  standard  figure  is  adopted  at  which  to  establish  a 
stumpage  charge  for  each  cord  of  wood  cut.  This  removes  the 
necessity  for  making  an  original  calculation  in  each  particular 
case.  The  method  of  handling  the  problem  of  depletion  of 
forest  lands  in  the  pulp  and  paper  industry  is  suggestive  of  the 
method  to  be  followed  in  other  industries  where  similar  condi- 
tions are  encountered. 

Example. — What  is  the  average  cost  per  ton  of  ground  pulp 
for  the  standing  timber  used  in  a  Canadian  pulp  mill  consum- 
ing 3,295,500  4-foot  pieces  of  timber,  as  follows,  the  stumpage 
charge  being  on  the  basis  of  65  cents  per  cord?  There  were 
produced  32,000  tons  of  ground  wood  pulp. 


REPORT  OF  TIMBER  USED 


Diameter  of  Timber  in  Inches 

No.  of  4-ft.  Pieces  in  One  Cord 

No.  of  4-ft.  Pieces  Used 

4^ 

V/2 
&A 

7 

174 
122 
100 

82 

475,000 

700,000 
325,500 
1,795,000 

3,295,500 

MATERIAL 


59 


Solution 


Diameter 
of  Timber  in  Inches 

No.  of  4-ft. 
Pieces  Used 

No.  of  4-ft.  Pieces 
in  One  Cord 

No.  of 
Cords  Used 

Amount  at 
65c.  per  Cord 

4^ 

475,000 

174 

2,729.88 

$1,774.43 

O/2 

700,000 

122 

5,737.70 

3,729.51 

\)/y 

325,500 

100 

3,255.00 

2,115.75 

7 

1,795,000 

82 

21,890.24 

14,228.65 

Total  

3,295,500 

33,612.82 

$21,848.34 

No.  tons  produced 32,000 

Total  cost  of  timber $21,848.34 

Cost  of  standing  timber  per  ton  of  ground 

pulp $.6828 

\ 

Naturally,  if  the  owner  of  this  timber  were  to  deliver  it  as 
material  to  another  pulp  mill,  or  if  he  wished  to  record  the 
full  material  cost  on  his  own  books,  he  would  have  to  add  a 
charge  to  pay  for  the  cost  of  operation  in  cutting  and  deliver- 
ing it,  so  that  the  total  material  cost  would  be  made  up  of  both 
wastage  (stumpage  charge)  and  cost  of  operation. 

Problem  15 

What  is  the  average  cost,  per  ton  of  ground  pulp,  for  the 
standing  timber  used  in  a  Canadian  pulp  mill  consuming 
6,400,000  4-foot  pieces  of  timber  as  follows,  the  stumpage 
charge  being  on  the  basis  of  65  cents  per  cord?  There  were 
produced  60,000  tons  of  ground  wood  pulp. 


Diameter  of  Timber  in  Inches 

No.  of  4-ft.  Pieces  in  One  Cord 

No.  of  4-ft.  Pieces  Used 

4^ 
5H 
6^ 
7 

174 

122 
100 
82 

900,000 
1,400,000 
600,000 
3,500,000 

6,400,OCO 

60  PKOBLEMS  IN  COST  ACCOUNTING 

MATERIAL  COST  CALCULATION 

It  often  happens  that  a  manufacturer  finds  it  necessary  to 
grade  material  either  before  it  can  be  used  or  after  it  has  under- 
gone one  or  more  processes.  Whenever  a  quantity  of  material 
valued  at  an  average  price  is  graded  into  different  lots,  it  is 
necessary  to  establish  a  new  scale  of  values  for  the  various 
grades.  The  calculation  of  the  new  values  which  are  to  be 
used  in  place  of  the  average  price  paid  for  the  original  lot, 
necessitates  the  use  of  what  statisticians  call  weighted  averages. 
The  commonest  method  for  obtaining  the  relative  value  of  one 
grade  as  compared  with  another,  is  to  make  calculations  from 
the  separate  market  values  of  the  various  finished  products  into 
which  the  different  grades  of  material  go. 

The  following  example  will  illustrate  the  method  of  cal- 
culation as  applied  to  a  lot  of  bodies  for  Panama  hats  to  sell 
for  from  $3.00  to  $30.00  each : 

Example. — On  Jan.  3,  1917,  Messrs.  Pierce,  Bartlett  &  Co. 
imported  a  lot  of  950  bodies  for  Panama  hats,  for  which  they 
paid  $1,425.00,  including  duty,  brokerage  and  transportation 
charges.  Some  of  these  bodies  were  excellent  and  could  be  made 
up  into  hats  of  the  most  expensive  sort  while  others  were  so 
poor  that  they  could  be  made  up  into  cheap  hats  only.  There- 
fore, they  were  sorted  into  lots  according  to  the  grades  of  Pan- 
ama hats  which  they  would  produce  when  bleached,  blocked  and 
trimmed. 

The  finished  Panama  hats  were  graded  in  lots  at  50  cent 
intervals,  $3.00,  $3.50,  $4.00,  etc.,  as  shown  in  table  (page  61). 

Distribute  the  price  paid  for  the  entire  lot  of  hats  among 
the  various  grades  in  proportion  to  the  prices  at  which  the 
finished  hats  of  these  grades  would  sell.  It  is  assumed  by  the 
hat  manufacturer  that,  although  an  average  price  was  paid  for 


MATERIAL  61 

Number  Sales  Price  of 

of  Bodies  Finished  Hats 

13 No  good 

10 $3.00 

25 3.50 

50 4.00 

100 4.50 

200 5.00 

175 5.50 

150 6.00 

75 6.50 

50 7.00 

40 7.50 

25 8.00 

15 9.00 

10 10.00 

6 15.00 

5 20.00 

1 30.00 

the  lot  of  Panama  bodies  purchased,  the  bodies  which  are  suit- 
able for  making  into  $10.00  hats  are  worth  twice  as  much  as 
those  which  can  be  made  only  into  $5.00  hats. 

Solution 

The  number  of  Panama  bodies  of  each  grade,  multiplied 
by  the  selling  price,  gives  the  total  market  value  of  the  finished 
hats.  The  following  calculation  shows  that  the  950  finished 
hats  will  sell  for  $5,422.50.  The  cost  of  the  lot  was  $1,425.00, 
which,  divided  by  $5,422.50,  gives  26.2794  per  cent,  the  multi- 
plier to  be  used  in  reducing  the  amount  in  column  3  to  the  cost 
shown  in  column  5.  The  cost  per  body  is  then  arrived  at  by 
dividing  column  5  by  column  1  as  shown.  It  will  be  noticed 
from  the  calculation  that  the  body  for  a  $3.00  hat  is  priced  at 
$.788,  while  that  for  a  $30.00  hat  is  figured  at  $7.88,  or  ten 
times  the  cost  of  pne  for  a  $3.00  hat,  which  is  in  accordance 
with  the  principle  adopted  as  the  basis  of  the  valuation. 


62 


Cost  of  Panama  Hat  Bodies 


Number 
of  Hat 
Bodies 

Sales  Price 
of  Each 
Finished  Hat 

Value 
of  Hats 
Sold 

Multiplier 

Cost  of  Raw 
Material 

Cost  per  Body 

(1) 

13  no  good.  . 
10  

(2) 

$0.00 
3.00 

(3) 

$0.00 
30.00 

(4) 

26.2794% 

« 

(5) 

$0.00 

7  88 

(6) 

$.000 

788 

25  

3.50 

87.50 

a 

22  99 

9196 

50  

4.00 

200.00 

ft 

52.56 

1  0512 

100  

4.50 

450.00 

n 

118.26 

I  1826 

200  

5.00 

1,000.00 

a 

262.80 

1  314 

175  

5.50 

962.50 

u 

252.94 

1  4454 

150  

6.00 

900.00 

a 

236  .  52 

1  5768 

75  

6.50 

487.50 

u 

128.11 

1  708 

50  

7.00 

350.00 

u 

91.98 

1  8396 

40  

7.50 

300.00 

u 

78.84 

1.971 

25  

8.00 

200.00 

u 

52.56 

2  .  1024 

15  

9.00 

135.00 

<« 

35.47 

2.365 

10  

10.00 

100.00 

ft 

26.28 

2.628 

6  

15.00 

90.00 

ft 

23.65 

3.9416 

5  

20.00 

100.00 

u 

26.28 

5.256 

1  

30.00 

30.00 

ft 

7.88 

7.88 

950 

$5,422.50 

« 

$1,425.00 

Problem  16 

The  A.  B.  Tannery  Corporation  produced  a  lot  of  oak  tanned 
sole  leather  weighing  20,000  pounds  at  a  cost  of  $.35  per  pound. 
It  was  decided  to  cut  the  leather  up  into  what  the  trade  terms 


EXHIBIT  22. — Chart  Showing  Three  Methods  of  Cutting  a  Hide  Used  for 

Sole  Leather. 


MATERIAL  63 

bends,   shoulders,   bellies  and  heads.     The   different  methods 
of  cutting  sole  leather  are  shown  in  Exhibit  22. 

After  cutting  up  the  hides  according  to  the  diagram  shown 
at  the  left  of  Exhibit  22,  the  different  parts  were  weighed, 
with  the  following  results : 

Pounds  Per  cent 

Bends 10,200  51 

Shoulders 4,400  22 

Bellies 4,200  21 

Heads 1,200  6 


20,000  100 

At  the  time  when  the  hides  were  cut  the  market  value  of 
the  various  parts  was  as  follows :  Bends,  $.48 ;  shoulders,  $.36 ; 
bellies,  $.32;  and  heads,  $.18  per  pound. 

Distribute  the  cost  of  the  lot  of  sole  leather  in  proportion  to 
the  price  at  which  the  cut  sole  leather  would  sell.  It  is  assumed 
by  the  tanner  that,  although  the  sole  leather  costs  an  average  of 
$.35  per  pound  to  produce,  the  cut  leather  should  be  valued  in 
proportion  to  the  selling  price  of  the  bends,  shoulders,  bellies 
and  heads. 

AVERAGE  COST  OF  A  MIXTURE 

In  many  industries  it  is  the  practice  to  mix  several  grades 
of  material  together  in  order  to  obtain  the  desired  blend.  When 
this  is  done  it  is  necessary  to  calculate  the  average  cost  per 
pound  of  the  mixture.  The  method  of  procedure  is  illustrated 
in  the  following  example,  taken  from  the  textile  industry. 

Example. — What  would  the  average  cost  of  a  mixture  of 
cotton  be  which  is  made  up  of  20  per  cent  Egyptian  at  $.30, 
60  per  cent  Sea  Island  at  $.19,  and  10  per  cent  Uplands  mid- 
dlings at  $.14  ? 


64 

Solution 

20  pounds  Egyptian  cotton  at $.30          $6.00 

60  pounds  Sea  Island  cotton  at 19          11 . 40 

10  pounds  Uplands  middlings  cotton  at 14  1 . 40 


$18.80 
$18.80  -T-  100  pounds  =  $.188,  average  cost  per  pound. 

Problem  17 

What  would  the  average  cost  of  a  mixture  weighing  1.100 
pounds  be  which  is  made  up  as  follows:  200  pounds  of  Bag- 
dad wool  at  $.45,  600  pounds  of  Georgia  wool  at  $.55,  and  300 
pounds  of  woolen  waste  at  $.20  per  pound? 

ALLIGATION 

In  many  industries  it  frequently  happens  that  it  is  neces- 
sary to  calculate  the  proportion  in  which  various  grades  of  ma- 
terial must  be  mixed  together  in  order  to  produce  a  mixture 
costing  a  certain  price  per  pound.  The  problem  is  solved  as 
shown  in  the  following  example. 

Example. — In  what  proportion  should  tea  costing  $.46  per 
pound  be  mixed  with  that  costing  $.70  per  pound  to  give  a  mix- 
ture costing  an  average  of  $.60  per  pound  ? 

Solution 

Low  price  $ .  46  per  pound 
High  price  .  70  per  pound 
Average  price  .  60  per  pound 

The  $.46  grade  costs  14  cents  per  pound  less  than  the  aver- 
age price,  and  the  $.70  cent  grade  10  cents  more.  It  is  desired 
so  to  mix  the  two  grades  that  the  loss  on  the  higher  priced  grade 
will  offset  the  gain  on  the  lower  priced  one.  It  is  evident  that 
14  pounds  at  $.10  is  equal  to  10  pounds  at  $.14  and  so  it  will 


MATERIAL  65 

be  necessary  to  mix  the  two  grades  in  the  proportion  of  10 
pounds  of  the  $.46  tea  to  14  pounds  of  the  $.70  tea.  The  re- 
sult of  the  calculations  can  be  proved  as  follows: 

10  pounds  at  $.46  =    $4.60 
14  pounds  at     .70  =      9.80 


24  pounds  at     .60  =  $14.40 

The  proportion  in  which  the  two  teas  should  be  mixed  is 
32.64  per  cent  of  the  $.46  grade  and  67.36  per  cent  of  the  $.70 
grade. 

Problem  18 

In  what  proportion  should  wool  costing  $.55  per  pound  be 
mixed  with  that  costing  $.75  per  pound  to  give  a  mixture  cost- 
ing $.70  per  pound? 

BY-PRODUCTS 

In  some  industries  it  is  necessary  to  sort  the  material  pur- 
chased so  as  to  be  able  to  pick  out  the  inferior  grades  and  leave 
the  better  grades,  while  in  other  industries  inferior  grades  of 
material  result  from  certain  operations.  In  either  case  the  in- 
ferior grades  or  by-products  are  worth  less  per  unit  than  the 
average  unit  price  of  the  original  stock.  The  manufacturer  is 
concerned  primarily  with  the  cost  of  each  unit  of  the  better 
grade  which  he  uses  for  his  standard  product.  Yet  he  gets 
some  value  out  of  the  by-products  because  of  salability  or  usa- 
bility, and  consequently  he  must  deduct  the  price  equivalent  of 
this  value  from  the  cost  of  the  original  lot  of  material  before 
estimating  the  average  charge  to  be  made  for  the  good  stock 
employed  in  standard  fabrication. 

In  the -case  of  a  woolen  or  worsted  mill  the  low-grade  wool 
resulting  from  the  sorting  operation  has  to  be  appraised  and  de- 
ducted from  the  original  cost  of  the  lot.  The  remaining  figure 


66  PKOBLEMS  IN  COST  ACCOUNTING 

is  divided  by  the  pounds  of  high-grade  wool  to  arrive  at  the 
average  pound  cost.  The  following  example  will  make  the  prob- 
lem clear : 

Example. — A  lot  of  5,310  pounds  of  Australian  %  blood 
cross-bred  wool  cost  $1,200.00  delivered  at  the  mill.  When 
sorted  there  were  in  addition  to  the  %  body  sort,  burry  valued 
at  $.15,  fribs  at  $.14,  cotton  wool  at  $.13  and  ^  blood  wool  at 
$.23  per  pound,  as  follows: 

%  body  sort  5,155  pounds 
Side  sorts 

Burry  35  pounds 

Fribs  16  pounds 

Cotton  wool  4  pounds 

%  blood  wool  100  pounds            155  pounds 


5,310  pounds 
What  is  the  cost  of  the  body  sort  per  pound  ? 

Solution 

5,310  pounds  Australian  wool $1,200 . 00 

Deduct  side  sorts 

35  pounds  burry  at  $ .  15  per  pound $5 . 25 

16  pounds  fribs  at  $ .  14  per  pound 2 . 24 

4  pounds  cotton  wool  at  $ .  13  per  pound .52 

100  pounds  Y±  blood  wool  at  $ .  23  per  pound ....  23 . 00  31 . 01 


$1,168.99 

The  cost  of  the  body  sort  per  pound  is  equal  to  $1,168.99 
which  divided  by  5,155  pounds  gives  $.2267  per  pound. 

During  the  combing  process  in  a  woolen  or  worsted  yarn 
mill  noils,  card  waste,  bur  waste  and  lap  waste  are  produced, 
with  the  result  that  an  allowance  for  these  by-products  has  to 
be  made  in  the  cost  of  tops.  In  the  following  problem  it  is 
necessary  to  estimate  the  value  of  the  waste  by-products  and 
deduct  it  from  the  original  cost  of  the  lot. 


MATERIAL  67 

Problem  19 

A  lot  of  15,000  pounds  of  %  body  sort  Australian  wool  cost- 
ing $3,000.00  was  tested  to  determine  the  cost  of  the  combed 
top  with  the  following  results: 

Top  77  per  cent 
By-products 

15  per  cent  noil  at $.15 

5  per  cent  card  waste  at 09 

1  per  cent  bur  waste  at 20 

2  per  cent  lap  waste  at 18 

Total  clean  weight  10,000  pounds 

What  was  the  cost  per  pound  of  combed  top  ? 

It  will  be  noted  that  the  original  weight  shrank  from  15,000 
to  10,000  pounds,  making  the  loss  equal  to  ~ys  of  the  original 
weight. 

Answer. — 7,700  pounds  top  cost  $.3472  per  pound. 

LOSS  AND  GAIN  IN  WEIGHT 

In  some  industries  the  material  in  process  of  manufacture 
is  continually  undergoing  changes  in  either  weight  or  length. 
Yarn  in  a  textile  mill,  for  example,  is  continually  subjected  to 
changes  due  either  to  atmospheric  conditions  or  manufacturing 
processes. 

Example. — If  yarn  that  cost  $.77  per  pound  gained  10  per 
cent  of  moisture  what  would  the  cost  after  the  gain  be  ? 

Solution 

100  +  10  =  110  per  cent  yield. 

$.77  -j-  1.10  =  $.70  per  pound;  cost  after  gain  of  moisture. 

Problem  20 

If  yarn  that  cost  $1.15  per  pound  gained  12  per  cent  in  a 
damp  warehouse  what  would  the  cost  be  after  the  gain  ? 


08  PROBLEMS  IN  COST  ACCOUNTING 

Example. — If  wool  that  cost  $.28  per  pound  shrinks  40  per 
cent  in  washing  and  cleaning  what  would  the  cost  per  scoured 
pound  be? 

Solution 

100-40      =  60  per  cent  yield. 

$ .  28  -f-    60  =  46%  cents  per  pound  scoured. 

Problem  21 

If  wool  costing  $.55  per  pound  shrinks  35  per  cent  while 
being  scoured  what  would  the  cost  per  scoured  pound  be  ? 

TAKE-UP  IN  YARN  DUE  TO  TWISTING 

Yarn  contracts  when  made  into  rope,  due  to  the  take-up  in 
twisting,  which  usually  amounts  to  20  per  cent.  The  calcula- 
tion is  illustrated  in  the  following  example. 

Example. — How  many  yards  of  yarn  are  required  to  make 
100  yards  of  rope  with  120  ends  ? 

Solution 

120  ends  X  125  yards  =  15,000  yards  of  yarn  required 

Problem  22 

How  many  yards  of  yarn  are  required  to  make  100  yards  of 
rope  with  150  ends  ? 

INVISIBLE  LOSS 

In  the  textile  industry  there  is  an  invisible  loss  in  weight 
going  on  all  the  time  and  it  is  necessary  to  calculate  what  this 
amounts  to  in  order  to  make  allowance  for  the  loss  in  manu- 
facturing when  figuring  costs. 

Example. — What  was  the  invisible  loss  in  manufacturing 
for^the  year  1916  at  the  New  Hampshire  Worsted  Mill  Com- 


MATERIAL  69 

pany's  plant?  The  yarn  on  hand  Jan.  1,  1916,  was  14,825 
pounds.  Purchases  for  the  year  amounted  to  558,793  pounds. 
The  weight  of  goods  produced  was  434,274  pounds,  and  the  in- 
ventory on  Dec.  31,  191G,  was  23,580  pounds. 

Solution 

Pounds 

Inventory  Jan.  1,  1916 14,825 

Purchases 558,793 


Total 573,618 

Inventory  Dec.  31,  1916 23,580 


Stock  consumed 550,038 

Production 434,274 


Invisible  loss 115,764 

115,764  pounds  (Invisible  loss)  -f-  550,038  pounds 
(Stock  consumed)  =  21  per  cent. 

The  invisible  loss  in  the  mill  was  therefore  115,764  pounds 
or  21  per  cent  of  the  stock  consumed. 

Problem  23 

What  was  the  invisible  loss  in  manufacturing  for  the  year 
1916  at  the  Lowell  Textile  Mill  ?  The  yarn  on  hand  Jan.  1, 
1916,  was  30,000  pounds.  Purchases  for  the  year  amounted 
to  775,500  pounds.  The  weight  of  goods  produced  was  685,000 
pounds,  and  the  inventory  on  Dec.  31,  1916,  was  45,000  pounds. 

COST  OF  YARN  IN  KNIT  GOODS 

It  generally  requires  several  kinds  of  yarn  to  make  knit 
goods  such  as  hosiery.  For  instance,  a  stocking  may  have  one 
kind  of  yarn  in  the  top,  another  in  the  leg,  and  two  kinds  in 


70  PKOBLEMS  IN  COST  ACCOUNTING 

the  foot.  Each,  kind  of  yarn  costs  a  different  price  per  pound, 
and  a  certain  amount  of  waste  is  made  during  the  process  of 
manufacture.  It  is  therefore  necessary  to  take  into  account  the 
proportion  of  each  kind  used,  and  also  the  waste  made  in  'manu- 
facturing, when  figuring  the  cost  of  yarn  in  knit  goods.  The 
following  example  illustrates  the  method  of  calculation  involved 
in  arriving  at  the  yarn  cost. 

Example.  —  What  is  the  cost  of  yarn  in  knit  goods,  in  the 
two  cases  following,  allowing  5  per  cent  for  waste  made  in 
knitting  ? 

Case  1     Goods  :  8  pounds  to  the  dozen 
Yarn:    %  at  $.  70  per  pound 
££  at  $  .  30  per  pound 

Case  2     Goods:  7  pounds  to  the  dozen 
Yarn:    J4  at  $  .  40  per  pound 
Y%  at  $  .  70  per  pound 
Y%  at  $1  .  00  per  pound 
Yz  at  $  .  30  per  pound 


Solution 

Case  1     *A  yarn  at  $.70  =  $.23M 
= 


yarn  at    .30  =     .20 


$  .43^X8  =  S3.46M 

3.46^  -5-  -95  (100%  -  5%)  =  $3.65 
cost  of  yarn  per  dozen. 

Case  2     %  yarn  at  $.40  =  $.10 
H  yarn  at    .70  =     .08% 
}/%  yarn  at  1 . 00  =     .  12^ 
Yi  yarn  at    .  30  =     .15 

1  $.46M 

$  .46M  X  7  =  $3.23M 

3.23%  -J-  .95  (100%  -  5%)  =  $3.41 
cost  of  yarn  per  dozen. 


MATERIAL  71 

Problem  24 

Find  the  cost  of  yarn  in  knit  goods,  under  the  following 
conditions,  allowing  5  per  cent  for  waste  made  in  knitting. 

Case  1     Goods:  7  Ibs.  to  the  dozen 
Yarn:    %  at  $ . 66  per  Ib. 
%at    .33perlb. 

Case  2     Goods:  6H  Ibs.  to  the  dozen 

Yarn:    %  at  $ . 36  per  Ib. 

Hat    .SOperlb. 

Hat    .88perlb. 

^at    .28perlb. 


Thrown  silk  consists  of  the  filaments  of  from  eight  to  ten 
cocoons  which  have  been  twisted  into  a  single  strand  known  as 
a  "singler."  Warp  threads  known  as  organzine  are  made  of 
two  or  three  twisted  strands  which  are  spun  in  the  direction 
contrary  to  that  in  which  they  are  separately  twisted.  The 
filling  thread,  which  is  called  tram,  consists  of  two  or  three 
strands  of  raw  silk  which  are  not  twisted  before  doubling  and 
which  are  only  lightly  spun.  Tram  is  soft,  flossy  and  weak. 

The  construction  of  broad  silk  goods  is  of  such  a  character 
that  the  weight  of  organzine  (warp)  and  tram  (filling)  can  be 
calculated  with  a  considerable  degree  of  accuracy.  It  is  there- 
fore customary  for  silk  manufacturers  to  prepare  an  estimate  of 
the  weight  of  material  required  for  each  style  of  goods  which 
it  is  desired  to  make. 

SYSTEM  OF  COUNTS 

The  denier  (1  denier  silk  has  4,464,528  yards  to  the  pound) 
system  of  counts  is  used  for  raw  silk,  and  the  dram  (1  dram 


72  PROBLEMS  IN  COST  ACCOUNTING 

silk  has  256,000  yards  to  the  pound)  system  of  counts  for 
thrown  silks.  The  denierage  of  silk  depends  upon  the  ratio 
which  4,464,528  bears  to  the  yards  in  a  pound.  For  example, 
an  11/13,  meaning  average  12,  denier  silk  has  1/12  of  4,464,528 
yards  or  372,044  yards  to  a  pound.  In  the  same  way,  a  2  dram 
silk  has  y2  of  256,000  yards  or  128,000  yards  to  a  pound.  It 
will  be  noticed  that  there  are  17.44  times  as  many  yards  in  a 
1  denier  silk  as  in  a  1  dram  silk. 

The  method  of  calculating  the  weight  of  organzine  and 
tram  required  for  100  yards  of  black  taffeta  silk  is  shown  in 
the  following  example : 

Example. — In  silk  mills  it  is  necessary  to  obtain  the  exact 
size  of  the  raw  silk  to  be  used  for  organzine  and  tram  from  the 
report  of  the  tests  made  by  the  conditioning  house.  As  there 
is  a  tendency  for  the  yarn  to  contract  when  twisted,  an  allow- 
ance for  take-up  in  twist  should  be  made  of  about  4  per  cent  for 
organzine  and  1  per  cent  for  tram.  The  waste  which  results 
from  the  process  of  preparing  yarn  and  in  weaving  must  also 
be  taken  into  account  when  estimating  the  weight  of  silk  re- 
quired ;  an  allowance  of  3  per  cent  for  warp  and  5  per  cent  for 
filling  ought  to  be  sufficient.  A  warp  of  110  yards  is  required 
in  order  to  produce  100  yards  of  finished  goods  because  during 
the  process  of  weaving  the  warp  is  stretched  in  the  loom,  after 
which  process  the  cloth  contracts,  due  to  the  take-up  which  re- 
sults from  the  interlacing  of  the  filling  with  the  warp  yarn. 

A. — What  is  the  weight  of  2-thread  organzine  required  for 
100  yards  of  black  taffeta  silk,  a  yard  wide,  with  5,000  ends, 
an  allowance  of  3  per  cent  being  made  for  waste  ?  The  size  of 
raw  silk  per  conditioning  house  test  is  10  deniers,  which  is  to  be 
doubled  for  2-thread  organzine. 

B. — What  is  the  weight  of  3-thread  tram  required  for  100 
yards  of  black  taffeta  silk,  a  yard  wide,  with  100  picks  per 
inch,  an  allowance  of  5  per  cent  being  made  for  waste?  The 


MATEEIAL  73 

size  of  raw  silk  per  conditioning  house  test  is  10  deniers,  which 
have  to  be  trebled  for  3-thread  tram. 

Solution 

A. — Weight  of  Organzine  (Warp)  Required. — 

1.  Size  of  raw  silk  per  conditioning  house  test,  10  deniers. 

2.  Double  this  for  2-thread  organzine,  20  deniers. 

3.  Add  3  per  cent  for  take-up  in  twisting,  20.6  deniers. 

4.  Dramage  equals  20.6  deniers,  divided  by  17.44=1.181 
dramage. 

5.  Yardage  per  pound  equals  256,000  divided  by  1.181= 
216,765  yards. 

6.  Yards  of  silk  required  for  warp  is  equal  to  5,000  ends 
multiplied  by  length  110  yards,  550,000  yards. 

7.  Add  an  allowance  of  3  per  cent  for  waste,  566,500  yards. 

8.  Divide  566,500  total  yardage  by  216,765  yardage  per 
pound  and  result  is  weight  of  organzine  required  for  warp,  2.61 
pounds. 

B. — Weight  of  Tram  (Filling)  Required. — 

1.  Size  of  raw  silk  per  conditioning  house  test,  10  deniers. 

2.  Treble  this  for  a  3-thread  tram,  30  deniers. 

3.  Add  1  per  cent  for  take-up  in  twisting,  30.3  deniers. 

4.  Dramage  equals  30.3  deniers  divided  by  17.44=1.737 
dramage. 

5.  Yardage  per  pound  equals  256,000  divided  by  1.737= 
147,392  yards. 

6.  There  are  100  picks  per  inch  in  each  yard. 

7.  Yards  of  filling  required  is  equal  to  100  x  3,600  inches, 
360,000  yards. 

8.  Add  an  allowance  of  5  per  cent  for  waste,  378,000  yards. 

9.  Divide  378,000  total  yardage  by  147,392  yardage  per 
pound  and  result  is  weight  of  tram  required,  2.49  pounds. 


74  PROBLEMS  IN  COST  ACCOUNTING 

Problem  25 

A. — What  is  the  weight  of  2-thread  organzine  required  for 
100  yards  of  blue  taffeta  silk  a  yard  wide,  with  5,500  ends,  an 
allowance  of  3  per  cent  being  made  for  waste?  The  size  of 
raw  silk  per  conditioning  house  test  is  11  deniers,  which  is  to 
be  doubled  for  2-thread  organzine. 

B. — What  is  the  weight  of  3-thread  tram  required  for  100 
yards  of  blue  taffeta  silk  a  yard  wide,  with  120  picks  per  inch, 
an  allowance  of  5  per  cent  being  made  for  waste  ?  The  size  of 
raw  silk  per  conditioning  house  test  is  11  deniers,  which  have 
to  be  trebled  for  3-thread  tram. 


PART  III 
LABOR 


CHAPTER  VI 
WAGE  SYSTEMS 

No  aspect  of  accounting  for  labor  and  service  is  more  deserv- 
ing of  attention  than  that  of  systems  of  wage  payment.  The 
reason  is  obvious.  It  is  just  as  necessary  for  the  factory  man- 
ager to  know  how  much  service  he  is  buying  for  a  dollar  as  it 
is  to  know  the  cost  of  materials,  and  the  various  wage  systems 
seek  to  establish  a  normal  standard  of  service  for  each  dollar 
spent  or,  to  put  it  otherwise,  to  determine  a  fixed  equivalent  for 
money  in  terms  of  work  performed.  We  shall  consider  six  wage 
systems  now  in  use. 

1.  Hourly  rate. 

2.  Piece  rate. 

3.  Differential  piece  rate  (Taylor  system). 

4.  Premium  rate  (Halsey:  Rowan). 

5.  Bonus  (Gantt). 

6.  Efficiency  (Emerson). 

Because  of  its  simplicity  the  hourly  rate  is  the  system  found 
in  most  factories.  Under  this  system  the  operators  receive  a 
fixed  wage  per  hour  and  they  are  expected  to  turn  out  the  maxi- 
mum quantity  and  quality  of  work  during  the  time  for  which 
they  are  paid.  The  system  is  easy  to  operate,  but  the  foreman 
must  be  depended  upon  to  obtain  results  from  the  workmen. 
This  means  that  a  great  deal  of  supervision  is  required — the 
chief  disadvantage  of  the  system. 

In  order  to  overcome  some  of  the  objections  raised  in  con- 
nection with  the  hourly  wage-rate  system  the  piece-work  plan 

77 


78  PEOBLEMS  IN  COST  ACCOUNTING 

of  payment  has  frequently  been  introduced.  Here  each  operator 
receives  a  fixed  sum  for  each  piece  of  work  actually  turned  out. 
The  total  wage  of  a  workman,  therefore,  depends  upon  the  num- 
ber of  articles  he  produces.  In  order  to  establish  the  rate  it  is 
necessary  to  make  a  test,  under  proper  operating  conditions,  to 
ascertain  the  number  of  parts  which  can  be  produced  by  an  in- 
dividual in  a  certain  period  of  time.  Considerable  difficulty  is 
usually  experienced  in  establishing  piece-work  rates,  because  if 
the  rate  is  based  on  the  results  shown  by  the  most  skilled  work- 
man, the  management  profits  on  the  one  hand,  but  the  average 
workman  is  likely  to  be  penalized  on  the  other  hand.  How- 
ever, if  the  piece-work  rate  is  based  upon  what  an  average  good 
operator  can  do,  this  method  is  about  as  fair  as  it  is  possible  to 
devise,  since  the  compensation  is  directly  in  proportion  to  the 
output.  The  best  factory  practice  is  not  to  change  the  rate  after 
it  has  been  fixed  unless  there  is  a  change  in  method  or  equip- 
ment and  then  only  by  agreement  with  the  operators. 

The  differential  piece  rate  wage  system  was  given  consider- 
able publicity  by  Frederick  W.  Taylor.  Under  this  system  the 
operator  is  paid  not  only  for  each  piece  of  work  turned  out  as 
under  the  piece-work  plan,  but  he  receives  successively  higher 
rates  for  increased  speeds  of  production.  In  actual  practice  the 
very  high  speed  operator  is  selected  by  the  employer  and  taken 
as  the  standard.  He  receives  a  high  piece  rate  for  each  piece 
that  he  turns  out.  The  slower  workman  turning  out  less  units  in 
a  given  time  is  compensated  at  a  lower  piece  rate.  The  employer 
who  wishes  to  convert  his  piece-work  system  into  this  differen- 
tial piece-work  system  will  say,  for  example,  to  a  workman  who 
requires  ten  hours  to  do  seven  pieces  of  a  certain  kind  of  work 
for  which  he  is  paid  at  the  rate  of  $.28  an  hour,  "If  you  will 
turn  out  nine  pieces  in  ten  hours,  your  rate  will  be  $.44  per 
piece,  if  you  turn  out  eight  pieces  in  ten  hours  your  rate  will 
be  $.42,  but  if  you  maintain  the  old  speed  of  seven  pieces  in  ten 


LABOR  79 

hours  your  rate  will  continue  $.40  per  piece,  which  is  equiva- 
lent to  $.28  per  hour."  The  theory  underlying  this  system  is 
that  since  the  employer  must  meet  overhead  charges  as  long  as 
his  business  runs,  he  can  afford  to  pay  an  operator  well  who 
works  fast  and  therefore  shortens  the  period  of  production  and 
cuts  down  the  corresponding  overhead  costs.  The  employer 
naturally  selects  his  fastest  man  in  establishing  his  standard  of 
calculation  rather  than  an  average  man,  because  he  wishes  to 
spur  on  the  rest  to  attain  the  maximum  possible  production. 

The  bonus  plan  of  wage  payment  has  been  received  favor- 
ably in  many  quarters.  It  is  sometimes  called  the  task  and 
bonus  system.  The  plan  is  to  determine  upon  a  standard  task 
and  to  pay  the  workman  a  bonus  of  from  30  to  100  per  cent 
extra  wages  for  performing  the  task  within  the  time  allowed. 
The  plan  thus  has  the  same  sharp  stimulus  to  endeavor  as  the 
differential  piece  system  but  differs  from  it  in  guaranteeing  the 
man  a  lower  hourly  rate  as  a  minimum  and  in  limiting  his  earn- 
ings to  the  day  rate  plus  the  bonus  received  for  exceeding  the 
standard. 

In  the  efficiency  or  Emerson  wage  system,  as  it  is  some- 
times called,  the  workman  receives  his  hourly  rate  as  a  mini- 
mum. A  standard  of  performance  is  set  and  then  at  66  2/3  per 
cent  efficiency  the  operator  begins  to  receive  an  increased  return 
for  his  effort.  For  each  per  cent  increase  over  66  2/3  per  cent 
he  is  rewarded  proportionately,  the  increase  for  each  per  cent 
reaching  a  maximum  at  100  per  cent  efficiency.  At  this  point 
a  20  per  cent  bonus  is  paid.  Above  this,  the  worker  receives, 
at  his  regular  rate,  all  the  time  he  saves  in  addition  to  the  20 
per  cent  bonus  for  the  time  worked.  The  efficiency  wage  sys- 
tem is  the  most  scientific  of  all  when  properly  applied. 

The  various  considerations  involved  in  fixing  different  wage 
rates  of  payment  will  be  understood  by  referring  to  the  follow- 
ing examples.  Reference  will  first  be  made  to  piece-work  rates. 


80 


PROBLEMS  IN  COST  ACCOUNTING 


PIECE-WORK  RATES 

Example  1. — Fix  a  straight  piece-work  rate  from  the  fol- 
lowing data : 


Time  Taken  Per  Piece  in  Minutes 

Maximum 

Minimum 

Average 

201 

10 

6 

9 

Average  man 

220 

12 

7 

10 

235 

14 

9 

13 

Slow  man 

218 

8 

5 

6 

Very  good  man 

Solution 

By  eliminating  unnecessary  motions  the  "standard  time"  is 
placed  at  6  minutes. 

An  allowance  of  ten  per  cent  is  made  for  rest,  or  six  min- 
utes per  hour. 

Then  in  54  minutes  (60  —  6)  9  pieces  at  6  minutes  each  can 
be  produced. 

Suppose  the  hourly  rate  of  the  workman  is  27  cents. 

Allow  him  an  increase  of  331/3  per  cent  over  his  present  rate. 
Then  under  the  piece-work  rate  system  the  workman  should 
receive  36  cents  per  hour. 

Hence  the  piece-work  price  is  equal  to  36-M),  or  4  cents 
each. 

Example  2.— If  the  "Standard  Time"  had  been  fixed  at  7 
minutes  per  piece  what  would  the  proper  piece-work  rate  have 
been,  the  other  conditions  remaining  the  same  ? 

Solution 

54 

Production  would  be  -=•  or  7.7  pieces  per  hour. 

At  an  hourly  rate  of  27  cents  increased  by  331/j  per  cent  or 


LABOR 


81 


$  36 
36  cents  per  hour  the  piece-work  rate  would  be~^=-or  $.0467. 

Example  3. — If  the  "Standard  Time"  had  been  8  minutes, 
the  operator's  rate  25  cents  per  hour,  and  the  allowance  a  20 
per  cent  increase  over  his  day  rate,  what  would  have  been  the 
proper  piece-work  rate,  the  other  conditions  remaining  the 

same? 

Solution 

54 

Production  per  hour  on  this  basis  is-^-or  6%  pieces  per  hour 

o 

at  an  hourly  rate  of  $.25,  increased  by  20  per  cent  or  30  cents 

$  30 

per  hour.    Piece-work  rate  would  be   '      pieces  or  $.0444  each. 

u.75 

Note:  The  workman's  earnings  per  hour  at  a  piece-work 
price  of  $.0444  each  would  be  as  follows  under  varied  condi- 
tions : 


Man  No. 

Average  Time 
in  Minutes 

Output 
per  Hour 

Earnings  per  Hour 
in  Cents 

201 

9 

6.0 

27 

220 

10 

5.4 

24 

235 

13 

4.1 

18 

218 

6 

9.0 

40 

Problem  26 

(1)  Fix   a    straight   piece-work   rate    from   the   following 


data: 


Time  Taken  per  Piece  in  Minutes 

Maximum 

Minimum 

Average 

301 

13 

9 

10 

Very  good  operator 

320 

15 

11 

12 

Moderately  good  op- 

erator 

325 

18 

13 

15 

Slow  operator 

340 

12 

9 

10 

Very  good  operator 

82 


PROBLEMS  IN  COST  ACCOUNTING 


An  allowance  of  10  per  cent  is  to  be  made  for  rest,  or  6  min- 
utes per  hour.  The  workman's  hourly  rate  is  30  cents  and  is 
to  be  increased  a  third  under  the  piece-work  system. 

(2)  What  would  the  piece-work  rate  be  if  the  conditions 
were  the  same  as  in  the  foregoing  case  except  that  the  operat- 
or's rate  is  to  be  increased  50  per  cent  under  the  piece-work 
system  ? 

(3)  What  would  the  operator's  earnings  per  hour  be  accord- 
ing to  the  piece-work  rates  fixed  under  the  two  foregoing  sec- 
tions if  the  output  per  hour  was  as  follows  ? 


Operator 


Output 
per  Hour 


301  4  pieces 

320  5      " 

325  6      « 

340  7      « 

DIFFERENTIAL  PIECE-WORK  RATES 

t 

Attention  will  next  be  directed  to  the  method  of  fixing  a 
differential  piece-work  rate.  The  following  example  will  illus- 
trate the  plan  of  procedure. 

Example. — Fix  a  differential  piece-work  rate  for  curling 
ostrich  feather  plumes,  style  1948  (19  inches  long;  sell  for  $48 
per  dozen),  from  the  data  contained  in  the  following  table.  As 
production  increases  above  the  standard,  rates  increase,  and  as 
production  decreases  below  the  standard,  rates  decrease. 

Curlers  average  $22.50  per  week  of  45  hours. 


Job  No. 

Employee's  No. 

Time  Started 

Time  Finished 

Dozens  Finished 

1 

79 

10.00A.M. 

5.00  P.M. 

2 

2 

80 

9.00A.M. 

5.00  P.M. 

2 

3 

81 

8.00A.M. 

2.00  P.M. 

2 

4 

82 

8.30A.M. 

12.00M. 

1 

5 

83 

1.00  P.M. 

5.00  P.M. 

1 

6 

84 

4.00  P.  M. 

5.00  P.M. 

X 

LABOR 


83 


In  computing  the  elapsed  time  deduct  the  lunch  hour  from 
12  M  to  1  P.  M. 

Solution 


Job 

No. 

Employee's 
No. 

Time 
Started 

Time 
Finished 

Elapsed 
Time,  Hours 

Dozen 
Finished 

Hours  per 
Dozen 

1 

79 

10.00A.M. 

5.00  P.M. 

6 

2 

3 

2 

80 

9.00A.M. 

5.00P.M. 

7 

2       • 

V/2 

3 

81 

8.00A.M. 

2.00P.M. 

5 

2 

VA 

4 

82 

8.30A.M. 

12.00M. 

3^ 

1 

V/2 

5 

83 

1.00  P.M. 

5.00P.M. 

4 

1 

4 

6 

84 

4.00  P.M. 

5.00  P.M. 

1 

H 

4 

Total. 

26H 

&A 

3.2 

From  the  foregoing  it  appears  that  3  dozen  per  hour  is  a 
good  average  figure  to  adopt  for  a  standard  rate  of  perform- 
ance. At  $.50  an  hour  this  would  amount  to  $1.50  per  dozen 
for  curling  when  one  dozen  is  curled  in  3  hours.  For  other 
rates  of  production  a  scale  such  as  the  following  can  be  applied : 


Hours 
per  Dozen 


Rate 
per  Dozen 


$1.70 
1.60 
1.50 
1.40 
1.30 


It  will  be  noticed  that  the  "Differential"  amounts  to  $.10 
for  a  decrease  of  one-half  hour  per  dozen  in  the  time  taken. 

Problem  27 

Fix  a  differential  piece-work  rate  for  curling  ostrich  feather 
plumes,  style  1964  (19  inches  long;  sell  for  $64  per  dozen), 
from  the  data  contained  in  the  following  table.  Curlers  aver- 
age $22.50  per  week  of  45  hours. 


84 


PROBLEMS  IN  COST  ACCOUNTING 


Job  No. 

Employee's  No. 

Time  Started 

Time  Finished 

Dozen  Finished 

10 

50 

9  A.  M. 

2  P.  M. 

2H 

11 

51 

'        10  A.  M. 

3  P.  M. 

2M 

12 

52 

1  P.M. 

5  P.  M. 

2 

13 

53 

11  A.  M. 

5  P.  M. 

2 

14 

54 

2  P.M. 

4  P.  M. 

Hi 

15 

55 

3  P.M. 

5  P.  M. 

N 

Consideration  will  next  be  given  to  the  fixing  of  wage  rates 
of  payment  under  the  premium  system.  Reference  to  the  fol- 
lowing example  will  make  the  method  of  calculation  clear. 

Example. — Fix  a  Premium  Wage  Rate  per  dozen  for  curl- 
ing ostrich  feather  plumes,  style  1948  (19  inches  long;  sell  for 
$48  per  dozen),  from  the  data  contained  in  the  foregoing 
example  under  differential  piece-work  rates,  so  that  the  pre- 
mium paid  will  equal  one-half  the  difference  between  the  time 
taken  and  the  time  allowed  when  the  job  is  done  in  the  stand- 
ard time. 

Solution 

Take  the  standard  time  at  three  hours  per  dozen  and  the 
operator's  rate  at  $.50  per  hour.  Then  if  a  job  is  done  in 
two  hours,  the  operator's  earnings  would  be  calculated  as 
follows : 

2     hours,  one  dozen  (actual  time)  at  $ .  50  per  hour    $1 . 00 
%  hour  (premium)  at  $  .50  per  hour .25 


1     hour  (saved)  at  $  .50  per  hour. 
Total.. 


1.25 
.50 

$1.75 


LABOR  85 

From  the  foregoing  it  is  seen  that  the  workman  receives  his 
hourly  rate  of  $.50  for  the  time  on  the  job,  or  $1.00.  In  ad- 
dition he  receives  one-half  of  an  hour's  pay  for  the  time  served, 
or  $.25.  He  still  has  one  hour  left  worth  $.50,  so  that  he  gets 
at  least  $1.75  for  three  hours'  work  as  against  the  regular  al- 
lowance of  $1.50,  the  difference  being  the  premium. 

Problem  28 

Fix  a  Premium  Wage  Rate  per  dozen  for  curling  ostrich 
feather  plumes,  style  1964  (19  inches  long;  sell  for  $64  per 
dozen),  from  the  data  contained  in  the  table  given  in  the  prob- 
lem under  differential  piece-work  rates,  so  that  the  premium 
paid  will  equal  one-third  the  difference  between  the  time 
taken  and  the  time  allowed  when  the  job  is  done  in  the  stand- 
ard time. 


BONUS  WAGE  RATES 

In  some  cases  the  bonus  system  of  paying  for  work  has  been 
introduced  into  offices.  Under  this  method  of  payment  em- 
ployees are  given  a  bonus  if  a  standard  rate  of  production  is 
exceeded.  For  example,  an  employee  who  operates  a  typewriter 
may  be  paid  a  bonus  on  a  sliding  scale  according  to  the  number 
of  square  inches  written  per  hour.  The  method  of  calculation 
is  to  compute  the  amount  earned  at  the  regular  weekly  or  hourly 
•rate,  and  then  to  the  number  of  square  inches  written  per  hour, 
add  the  bonus  corresponding.  The  computation  of  the  amount 
earned  by  nine  operators  on  different  jobs  selected  at  random  is 
illustrated  in  the  next  example: 

Example. — From  the  following  table  used  in  figuring  the 
bonus  per  hour  for  typewriter  operators  who  received  $9.50  per 
week  of  471/i»  hours  make  a  computation  of  the  earnings  of  the 
typists,  keeping  bonus  money  separate. 


86 


PROBLEMS  IN  COST  ACCOUNTING 


BONUS-TABLE 


Square  Inches  per  Hour 

Bonus  per  Hour 

Sq.  In.  per  Hr. 

Bonus  per  Hour 

136  

$.0020 

170 

$  0280 

138  

.0028 

172 

.0300 

140  

.0040 

174 

0320 

142  

.0056 

176 

0340 

144  

.0068 

178 

0360 

146  

.0088 

180 

0400 

148  

.0104 

182 

0440 

150  

0120 

184 

0480 

152  

.0132 

186 

.0520 

154  

.0148 

188 

0560 

156  

.0160 

190 

.0600 

158  

.0176 

192 

.0640 

160  

.0200 

194 

.0680 

162  

.0208 

196 

.0720 

164  

.0224 

198 

.0760 

166  

.0240 

•200 

.1000 

168  

.0260 

220 

.1400 

PRODUCTION  TABLE 


Name 

Square  Inches 

Hours 

Sadie  Farrel  

175 

1.0 

Eliz.  Smith  

376 

1.9 

Grace  Cook  ' 

570 

3.1 

Francis  Hand  

850 

5.2 

Becky  Shaw  

1032 

6.1 

Dorothy  Dodd  

388 

1.9 

Minnie  Frisbie  

666 

3.0 

Madeline  Muller  

750 

4.2 

Sarah  Hayes  

420 

3.2 

LABOR 


87 


Solution 


Name 

Sq.  In. 

Hours 

Wage 

Bonus 

Total 

Sadie  Farrel  

175 

1.0 

$.20 

$.033 

$.233 

Eliz.  Smith  

376 

1.9 

.38 

.220 

.600 

Grace  Cook  

570 

3.1 

.62 

.143 

.763 

Francis  Hand  

850 

5.2 

1.04 

.112 

1.152 

Becky  Shaw  

1032 

6.1 

1.22 

.165 

1.385 

Dorothy  Dodd  

388 

1.9 

.38 

.247 

.627 

Minnie  Frisbie  

666 

3.0 

.60 

.432 

1.032 

Madeline  Muller  

750 

4.2 

.84 

.151 

.991 

Sarah  Hayes  

420 

3.2 

.64 

.000 

.640 

Problem  29 

Refer  to  the  bonus-table  in  the  foregoing  example  and  make 
a  computation  of  the  amount  earned  by  the  following  typewriter 
operators,  who  receive  $12  a  week  for  40  hours'  work. 

PRODUCTION  TABLE 


Name 

Square  Inches 

Hours 

Martha  O'Neil  

1190 

7 

Jeanette  Long  

1218 

7 

Sa  ah  Drew  

1232 

7 

Phoebe  Warren  

1260 

7 

Helen  K  ng  

1288 

7 

Vera  Lamb  

1316 

7 

Hettie  Snow  

1344 

7 

Ruth  Carrol  

1376 

7 

Blanche  Jacobs  

1400 

7 

EFFICIENCY  WAGE  SYSTEM 

One  of  the  methods  mentioned  in  connection  with  wage  sys- 
tems is  the  payment  of  a  bonus  to  operators  who  maintain  a 
certain  rate  of  production.  The  per  cent  efficiency  is  calculated 
as  follows: 


88  PROBLEMS  IN  COST  ACCOUNTING 

A=Actual  Time. 

S— Standard  Time. 

E=Efficiency  per  .cent. 

The  efficiency  per  cent  when  actual  and  standard  times  are 
known  is  equal  to  S-i-A. 

For  example,  if  the  standard  time  on  a  job  is  5.6  hours  and 
an  operator  does  the  job  in  7  hours,  his  efficiency  per  cent  is  as 

5  6 
follows:  where  A=7  and  S=5.6,  -^-=80  per  cent  efficiency. 

The  method  of  rewarding  operators  for  increased  produc- 
tion is  to  establish  a  bonus  corresponding  to  the  efficiency  per 
cents  which  can  be  attained.  The  bonus  is  a  percentage  to  be 
added  to  the  amount  earned  by  an  operator  at  his  regular  hourly 
rate.  The  following  example  shows  the  method  of  calculating 
the  bonus  to  which  operators  are  entitled  under  the  Emerson 
system : 

Example. — Make  a  computation  of  the  bonus  earned  by  an 
operator  according  to  the  "Emerson  System." 

STANDARD  TIME 

31.2  pieces  per  hour 
100      pieces  in  3 . 2  hours 

If  an  operator  does  54  parts,  the  standard  time  would  be 
54X.032=1.7  hours. 

If  the  actual  time  on  the  54  parts  was  1.93  hours,  the  "ef- 
ficiency per  cent"  would  be  1.7-1-1.98=88  per  cent. 

Reference  to  the  bonus  scale  following  shows  that  an  effi- 
ciency per  cent  of  88  corresponds  to  a  bonus  per  cent  of  8.5  to 
which  the  operator  is  entitled. 

The  calculation  of  the  amount  of  the  bonus  is  as  follows: 
1.93  hrs.  X25  cents  (wage  rate)  X8.5  per  cent  (bonus  factor) 
=$.04  bonus. 


LABOR 


.89 


Make  a  table  showing  (1)  name  of  operator,  (2)  actual 
time,  (3)  standard  time,  (4)  efficiency  per  cent,  (5)  amount 
earned  at  regular  rate,  and  (6)  bonus  earned  from  the  follow- 
ing data : 

STANDARD  TIME 

100  pieces  in  5  hours 
20  pieces  per  hour 
Hourly  wage  rate  30  cents  per  hour 


Name  of  Operator 

Number  of 
Pieces  Made 

Actual  Time 
in  Hours 

John  Smith         

50 

2M 

David  Williams        

60 

3M 

Joseph  Jordan            

45 

2K 

Daniel  Jones  

75 

4 

Henry  Pratt  

95 

5 

Alex  Burke     

120 

6^ 

Harry  Chase   

37 

2 

Clinton  Burg     

51 

2% 

Samuel  Heyer   

75 

4 

Louis  Keefer            

90 

4M 

Hiram  Chase  

100 

4% 

Solution 


••N^wne  of  Operator 

Number 
of 
Pieces 
Made 

Time 

Effi- 
ciency 
per 
cent 

imount 
Earned 
at  Regu- 
ar  Rate 

Bonus  Earned 

Actual 

Stand. 

% 

Amt. 

John  Smi  h  

50 
60 
45 
75 
95 
120 
37 
51 
75 
90 
100 

2M 
3^ 
2M 
4 
5 

6M 
2 

2M 
4 

4H 

4M 

2H 
3 

2M 
3% 

4K 
6 
1.85 
2.55 
&A 
4M 
5 

91 
92 
100 
94 
95 
96 
93 
93 
94 
100 
105 

$.82 
.98 
.68 
1.20 
1.50 
1.88 
.60 
.82 
1.2Q 
1.35 
1.42 

11 

12 
25 
14 
15 
16 
13 
13 
14 
25 
55 

$.09 
.12 
.17 
.17 
.23 
.30 
.08 
.11 
.17 
.34 
.78 

David  Williams  

Joseph  Jordan       .... 

Daniel  Jones  

Henry  Pratt  

Alex.  Burke  

Harry  Chase  

Clinton  Burg  

Samuel  Heyer  

Louis  Keefer  

Hiram  Chase     

90 


PROBLEMS  IN  COST  ACCOUNTING 


Use  the  "Bonus  Scale"  following  for  finding  the  "Bonus 
per  cent"  corresponding  to  the  "Efficiency  per  cent." 

BONUS  SCALE 


Efficiency, 
per  cent 

Bonus, 
per  cent 

Efficiency, 
per  cent 

Bonus, 
per  cent 

67 

0 

86 

7.5 

68 

0.5 

87 

8.0 

69 

0.7 

88 

8.5 

70 

1.0 

89 

9.0 

71 

1.4 

90 

10.0 

72 

1.7 

91 

11.0 

73 

2.2 

92 

12.0 

74 

2.6 

93 

13.0 

75 

3.0 

94 

14.0 

76 

3.3 

95 

15.0 

77 

3.7 

96 

16.0 

78 

4.0 

97 

17.0 

79 

4.4 

98 

18.0 

80 

5.0 

99 

19.0 

81 

5.2 

100 

25.0 

82 

5.6 

101 

26.0 

83 

6.0 

102 

27.0 

84 

6.5 

103 

35.0 

85 

7.0 

104 

45.0 

89. 


The  solution  to  the  foregoing  problem  is  presented  on  page 


OPERATION, 


PRODUCTION  REQUIRED 

PART  NO. SCHEDULE. 


Pieces  per  Hour 

Efficiency 
per  cent 

Bonus  in  Cents 

45  

67 

o 

50  

70 

1  per  dollar  of  wage 

60  

80 

K         U             U             U             U 

68.  

90 

]Q       "          u           u          U 

75  

100 

25    u      u      u      u 

83  

110 

35    u      u      "      " 

LABOR 


91 


Actual  time  X  Rate  per  hour  X  %  Bonus=Bonus  Earned. 

Note :  A  good  plan  is  to  give  each  operator  a  card  showing 
the  "Efficiency  per  cent"  corresponding  to  the  pieces  per  hour, 
and  the  bonus  in  cents  as  shown  on  the  preceding  page. 

Problem  30 

Make  a  table  showing  (1)  name  of  operator,  (2)  actual 
time,  (3)  standard  time,  (4)  efficiency  per  cent,  (5)  amount 
earned  at  regular  rate,  and  (6)  bonus  earned. 

STANDARD  TIME 

100  pieces  in  4  hours 
25  pieces  per  hour 
Hourly  wage  rate  $ .  40  per  hour 


Name  of  Operator 

Number  of 
Pieces  Made 

Actual  Time 
in  Hours 

Alfred  Moore  

100 

4^ 

James  Smith  

175 

7 

William  Kief  er  

80 

&A 

Samuel  Hand  

200 

9 

Philip  Blake  

325 

13^ 

Alex.  Burns  

150 

7 

Harry  Flynn  

215 

9 

Bernard  Hyer  

375 

16 

William  Bennet  

425 

18 

Use  the  "Bonus  Scale"  in  the  foregoing  example  for  finding 
the  "Bonus  per  cent"  corresponding  to  the  "Efficiency  per  cent." 


CHAPTER  VII 
TIME  KEEPING  AND  PAY-ROLL  FORMS 

One  of  the  main  elements  of  cost  is  labor.  This  is  usually 
divided  into  productive  and  nonproductive  labor.  Productive 
labor  may  be  defined  as  that  applied  directly  to  specific  portions 
of  the  product,  while  nonproductive  labor  is  that  labor  which 
•cannot  be  so  applied  directly  against  the  output.  Examples  of 
the  nonproductive  class  are  superintendents,  foremen,  inspect- 
ors, repair  men  and  general  utility  help. 

Care  must  be  taken  in  devising  a  cost  system  to  see  that  all 
productive  labor  is  properly  assessed  directly  against  the  various 
units  of  the  product  made.  The  plan  generally  followed  is  to 
make  use  of  time  reports  which  will  show  how  much  time  an  in- 
dividual workman  spends  in  productive  labor,  on  the  one  hand, 
and  how  much  he  spends  in  nonproductive  labor,  on  the  other. 
These  reports  are  the  basis  for  distributing  the  productive  labor 
against  each  particular  job  or  process  and  for  distributing  the 
nonproductive  labor  to  the  proper  overhead  expense  accounts. 

There  are  many  mechanical  aids  on  the  market  for  use  in 
obtaining  a  record  of  the  time  spent  by  the  employees  on  jobs, 
processes  or  different  classes  of  work.  The  conditions  in  each 
factory  vary  to  such  an  extent  that  the  individual  plant  under 
consideration  must  be  studied  carefully  before  attempting  to 
introduce  any  of  the  various  time-recording  devices  on  the 
market. 

Each  industry  has  certain  problems  peculiar  to  itself  which 
must  be  solved  in  arriving  at  the  labor  cost.  Reference  to  the 
following  cases  will  bring  out  some  of  the  conditions  met  in 

92 


LABOR  93 

practice  when  an  attempt  is  made  to  introduce  time  keeping  and 
pay-roll  forms  into  a  plant. 

COMPOSITOR'S  DAILY  TIME  REPORT 

Printing  factories  ordinarily  do  work  on  individual  job 
order  numbers,  and  it  is  very  desirable  to  keep  an  accurate 
record  of  the  time  taken  on  each  job,  as  well  as  time  taken  on 
work  which  cannot  be  charged  against  specific  orders.  The 
composition  department  is  found  in  all  printing  factories  and 
the  best  practice  is  to  use  a  daily  time  sheet  for  each  compositor. 
This  method  provides  a  means  for  showing  at  a  glance  just  what 
jobs  a  compositor  has  been  at  work  on,  and  the  time  taken  on 
each,  as  well  as  on  what  nonproductive  work  he  was  engaged. 
The  following  example  illustrates  the  method  of  time  keeping 
adapted  to  the  composition  department  in  a  job  printery. 

Example. — Devise  a  Daily  Time  Ticket  for  the  composition 
department  in  a  job  printing  factory  and  make  the  necessary 
entries  to  record  the  following  information.  The  nonproductive 
hours  are  classified  under  the  following  ten  heads:  (1)  office 
corrections,  (2)  changing  bad  letters,  (3)  relocking  forms,  (4) 
hunting  for  electros,  cuts  or  other  things,  (5)  cutting  material 
for  general  equipment,  (6)  distribution,  (7)  proofreading,  (8) 
holding  copy,  (9)  revising,  (10)  proving  cases. 

Part  1. — On  Jan.  8,  1917,  compositor  A.  Hamilton,  who  has 
clock  No.  1,  started  work  at  8  A.  M.  on  Job  1  for  The  City  Club, 
finishing  at  9  A.  M. 

From  9  A.  M.  on,  A.  Hamilton  spent  one  hour  making  office 
corrections,  one  and  one-half  hours  on  Job  2,  for  The  College  of 
the  City  of  New  York,  and  one-half  hour  on  proofreading,  after 
which  he  went  to  lunch. 

At  1  P.  M.  A.  Hamilton  started  work  on  Job  3,  for  the  West- 
ern Electric  Co.,  finishing  it  in  one  and  one-fourth  hours. 


LABOR  95 

From  2.15  P.  M.  to  2.30  p.  M.  he  spent  in  hunting  for  cuts. 
At  2.30  P.  M.  he  started  to  cut  material  for  general  equipment, 
finishing  at  3  p.  M. 

At  3  P.  M.  he  started  work  on  Job  4,  for  the  Twin  City  Elec- 
tric Co.,  finishing  it  at  4  p.  M. 

At  4  p.  M.  he  started  work  on  Job  5,  for  the  Queen  Quality 
Shoe  Co.,  finishing  it  at  4.45  p.  M. 

From  4.45  p.  M.  on,  he  spent  the  time  until  5  p.  M.  relock- 
ing  forms. 

Part  2. — Compute  the  elapsed  time  on  each  job  number  or 
nonproductive  labor  classification.  Separate  the  productive  and 
nonproductive  hours  into  two  columns. 

The  compositor's  daily  time  ticket  was  signed  by  the  fore 
man,  A.  Saunders. 

Solution 

The  form  of  daily  time  ticket  adapted  for  the  compo- 
sition department  in  a  job  printing  factory  is  shown  in  Ex- 
hibit 23.  The  complete  record  of  the  compositor's  work  for 
the  day  is  given,  and  a  division  is  made  between  productive  and 
nonproductive  hours.  The  former  are  a  direct  charge  against 
the  cost  of  individual  customers'  orders,  while  the  latter  are  a 
charge  to  the  overhead  expense  of  the  composition  department. 

Problem  31 

Devise  a  Daily  Time  Ticket  for  the  composition  department 
of  a  job  printery,  and  make  the  necessary  entries  on  it  to  record 
the  following  information.  Use  the  code  for  classifying  opera- 
tions given  in  the  foregoing  example. 

Part  1. — On  Jan.  9,  1917,  compositor  J.  Bliss,  who  has 
clock  No.  7,  started  work  at  8  A.  M.  on  Job  210  for  the  Union 
Dime  Savings  Bank,  finishing  at  11  A.  M.  A  half  hour  was  then 
spent  changing  bad  letters,  and  at  11.30  A.  M.  he  began  work  on 
Job  235  for  the  National  Surety  Co.  At  12  M.  the  compositor 


96  PROBLEMS  IN  COST  ACCOUNTING 

stopped  work  for  an  hour  and  afterward  finished  the  joh  at 
2  P.  M. 

From  2  p.  M.  until  2.30  p.  M.  the  time  was  spent  in  revising 
work.  From  2.30  until  5  p.  M.  he  worked  on  Job  400,  for  the 
Central  Leather  Co. 

Part  2. — Compute  the  elapsed  time  on  each  job  or  nonpro- 
ductive labor  classification  and  separate  the  time  spent  under 
each  head  into  two  columns. 

The  time  ticket  was  signed  by  the  foreman,  Wm.  Finney. 


In  a  job  printing  establishment  it  is  necessary  to  keep  a 
record  of  the  time  each  press  is  used  on  a  job.  Although  the 
record  should  show  who  are  the  pressmen  and  feeders  on 
the  jobs,  the  object  is  to  keep  a  daily  account  of  the  uses  of  the 
press  or  operations  related  to  it.  Time  should  be  divided  be- 
tween productive  and  nonproductive  hours  so  that  the  former 
can  be  charged  against  jobs  and  the  latter  to  the  overhead  ex- 
pense account.  The  method  of  time  keeping  adapted  to  the 
pressroom  of  a  job  printery  will  be  understood  from  the  follow- 
ing example : 

Example. — Devise  a  daily  time  ticket  for  the  pressroom  in 
a  job  printing  factory,  and  make  the  necessary  entries  to  record 
the  following  information.  The  nonproductive  hours  are  classi- 
fied under  these  ten  heads:  (1)  general  wash  up,  (2)  waiting 
for  0.  K.,  (3)  waiting  for  feeder,  (4)  waiting  for  stock,  (5) 
waiting  for  ink,  (6)  changing  bad  letters,  (7)  standing  time, 
(8)  making  up  shortage,  (9)  oiling,  (10)  repairing  automatic 
feeder. 

Part  1. — On  Jan.  3,  1917,  pressman  E.  Hill,  who  has  clock 
No.  5,  and  feeder  B.  Fiske,  who  has  clock  No.  6,  using  press  A, 
started  making  ready  at  8  A.  M.  on  job  10  for  the  Board  of  Edu- 


98  PROBLEMS  IN  COST  ACCOUNTING 

cation.  The  make-ready  was  finished  at  8.30  A.  M.  and  it  took 
until  9.45  A.  M.  to  run  1,000  impressions  of  16-page  work.  Two 
pounds  of  ink  were  used. 

From  9.45  A.  M.  to  10.30  A.  M.  Messrs.  Hill  and  Fiske  spent 
the  time  repairing  the  automatic  feeder  on  press  A. 

From  10.30  A.  M.  until  11  A.  M.  the  time  was  spent  making 
ready  bn  Job  11  for  the  Chamber  of  Commerce,  after  which  one 
hour  was  spent  in  running  off  800  impressions  of  16-page  work. 
One  and  one-half  pounds  of  ink  were  used. 

At  1  P.  M.  Messrs.  Hill  and  Fiske  started  Job  12  for  the 
General  Electric  Co.  The  make-ready  was  finished  in  half  an 
hour  and  then  one  hour  was  spent  in  running  off  800  impres- 
sions of  16-page  work.  Two  pounds  of  ink  were  used. 

At  2.30  P.  M.  the  same  pressman  and  feeder  started  the 
make-ready  on  Job  15  for  the  Hillside  Realty  Co.  It  took 
until  3.15  P.  M.  for  the  make-ready  and  until  5  P.  M.  to  run 
off  1,200  impressions  of  16-page  work.  Three  pounds  of  ink 
were  used  on  the  job. 

Part  2. — Compute  the  elapsed  time  on  each  job  number  or 
nonproductive  classification  and  set  down  the  results  in  two 
columns.  The  pressroom  daily  time  ticket  was  signed  by  A. 
Burke,  foreman. 

Part  3. — A.  What  was  the  number  of  impressions  per  hour 
of  running  time  ? 

B.  What  percentage  of  the  total  time  was  press  A  nonpro- 
ductive ? 

Solution 

Reference  to  the  daily  time  ticket  shown  in  Exhibit  24, 
illustrates  the  method  of  recording  the  information  pertain- 
ing to  the  time  spent  by  the  pressman  and  feeder  on  different 
jobs  for  the  period  of  one  day.  It  will  be  noticed  that  the 
make-ready  time  is  recorded  separately  from  the  running  time 
for  the  various  jobs,  as  follows: 


LABOR 


99 


Job  Number 

t 

Make-Ready, 
Hours 

Running, 
Hours 

10  

]4 

VA 

11  

1A 

1 

12  

1A 

1 

15  

% 

WA 

Total  

l\i 

5 

A.  The  number  of  impressions  divided  by  the  running  time 
in  hours  gives  the  number  of  impressions  per  hour;  as  follows : 

3,800  -T-  7*4  =  524 . 1  impressions  per  hour 

B.  The  percentage  of  the  total  time  that  Press  A  was  non- 
productive is  found  as  follows : 

Y±  -T-  8  =  9. 375  per  cent. 

Problem  32 

Devise  a  daily  time  ticket  for  the  pressroom  in  a  job  printery 
and  make  the  necessary  entries  to  record  the  following  infor- 
mation. Use  the  same  code  for  the  classification  of  nonpro- 
ductive work  as  given  in  the  foregoing  example. 

Part  1. — On  Jan.  3,  1917,  pressman  B.  Lane,  who  has  clock 
No.  10,  and  feeder  R.  Small,  who  has  clock  No.  11,  using  Press 
B.,  started  making  ready  at  8  A.  M.  on  Job  100  for  the  Bethle- 
hem Steel  Co.  The  make-ready  was  finished  at  8.45  A.  M.  and 
it  took  until  11.30  A.  M.  to  run  2,100  impressions  of  16-page 
work.  Three  pounds  of  ink  were  used. 

From  11.30  A.  M.  to  noon  Messrs.  Lane  and  Small  spent  the 
time  waiting  for  O.  K. 

From  1  P.  M.  to  1.30  p.  M.  the  time  was  spent  making  ready 
on  Job  110  for  R.  11.  Macy  Co.,  after  which  l1/^  hours  was 
spent  in  running  off  900  impressions  of  16-page  work.  One 
and  one-half  pounds  of  ink  were  used. 


100          PKOBLEMS  IN  COST  ACCOUNTING 

At  3  P.  M.  the  same  pressman  and  feeder  started  the  make- 
ready  on  Job  120  for  the  General  Chemical  Co.  It  took  until 
3.30  p.  M.  for  the  make-ready  and  until  4.30  to  run  off  1,000 
impressions  of  16-page  work.  Two  pounds  of  ink  were  used. 

The  time  to  5  r.  M.  was  spent  in  general  wash-up. 

Part  2. — Compute  the  elapsed  time  on  each  job  number  or 
nonproductive  classification  and  set  the  results  down  in  two 
columns.  The  pressroom  daily  time  ticket  was  signed  by  C. 
Beehler,  foreman. 

Part  3. — A.  What  was  the  number  of  impressions  per  hour 
of  running  time  ? 

B.  What  percentage  of  the  total  time  was  press  B  nonpro- 
ductive ? 


Piece  work  prevails  in  the  bindery  department  of  a  job 
printery  and  the  form  of  ticket  used  for  reporting  time  should 
provide  for  showing  the  quantity  of  work  performed  at  the  re- 
spective piece-work  rates,  as  well  as  the  length  of  time  taken. 
A  distinction  should  be  made  between  productive  and  nonpro- 
ductive time.  The  following  example  shows  how  the  problem 
of  time  keeping  in  the  bindery  department  of  a  job  printery  is 
solved. 

Example. — Devise  a  daily  time  ticket  for  the  bindery  in  a 
job  printing  factory  and  make  the  necessary  entries  to  record 
the  following  information.  Productive  hand  work  is  charged 
under  these  ten  heads :  (1)  folding,  (2)  gathering,  (3)  collat- 
ing, (4)  sewing,  (5)  pasting,  (6)  padding,  (7)  counting,  (8) 
edging  and  marbling,  (9)  reenforcing,  and  (10)  stamping. 
Productive  machine  work  is  charged  under  these  ten  heads: 
(1)  folding,  (2)  gathering,  (3)  perforating,  (4)  punching,  (5) 
ruling,  (6)  cutting,  (7)  trimming,  (8)  stitching,  (9)  eyeletting, 
(10)  embossing. 


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U 

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or   = 

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O 

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41 


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1Q1 


102 

Part  1. — On  Jan.  3,  1917,  binder  C.  Slocum  who  has  clock 
No.  20  started  work  at  8  A.  M.,  folding  by  hand  Job  30  for  the 
Eastern  Weaving  Co.,  finishing  at  11  A.  M.  Three  thousand 
pages  were  folded,  the  piece-work  rate  being  $.45  per  1,000. 

From  11  A.  M.  to  12  M.  he  worked  stamping  by  hand  Job 
41  for  the  Union  Pacific  Railway,  1,200  covers  being  stamped 
at  $.40  per  1,000. 

From  1  r.  M.  to  1.30  p.  M.  the  binder  lost  time  waiting  for 
repairs  to  be  made  on  the  machinery. 

At  1.30  P.  M.  he  started  work  punching  by  machine  on  Job 
52  for  the  Pennsylvania  R.  R.  Co.,  finishing  at  5  p.  M.  ;  14,000 
sheets  being  punched  at  $.17  per  1,000. 

Part  2. — Compute  the  productive  time  on  each  job  number 
and  also  the  nonproductive  time.  Separate  in  two  columns  the 
productive  hours  and  the  nonproductive  hours.  Extend  the 
piece-work  rates  and  obtain  the  amount  chargeable  against  spe- 
cific job  numbers. 

Allow  $.35  per  hour  while  waiting  for  repairs. 

The  bindery  time  ticket  was  signed  by  foreman,  K.  Bernard. 

Solution 

The  method  of  recording  the  time  worked  in  the  bindery 
of  a  job  printing  factory  is  shown  in  Exhibit  25.  It  will 
be  noticed  that  a  distinction  is  made  between  productive  hours 
chargeable  to  customers  and  nonproductive  time  chargeable  to 
the  bindery  overhead  expense  account.  While  the  binder 
was  kept  waiting  for  repairs  to  be  made  to  the  machinery  he 
was  allowed  $.35  an  hour  for  his  time.  It  is  desirable  to  in- 
dicate the  time  worked  on  each  job  as  well  as  the  amount  earned 
at  piece  work  so  that  a  statistical  statement  can  be  prepared  at 
frequent  intervals  which  will  show  the  average  hourly  earnings 
of  each  employee  when  on  productive  work. 


LABOR  103 

Problem  33 

Devise  a  daily  time  ticket  for  the  bindery  in  a  job  print- 
ing factory  and  make  the  necessary  entries  on  it  to  record  the 
following  information.  Use  the  code  for  classifying  different 
kinds  of  work  given  in  the  foregoing  example. 

Part  1. — On  Jan.  4,  1917,  binder  Alfred  Lewis  started  work 
at  8  A.  M.,  folding  by  machine  Job  100  for  the  Lowell  Weaving 
Co.,  finishing  at  10  A.  M.  Two  thousand  pages  were  folded,  the 
piece  work  being  $.50  per  1,000. 

From  10  A.  M.  until  12  M.  the  binder  perforated  by  machine 
on  Job  125  for  the  Textile  Finishing  Co.  Twenty  thousand 
sheets  were  perforated  at  a  piece-work  rate  of  $.45  per  1,000. 

From  1  P.  M.  until  5  p.  M.  he  worked  embossing  covers  for 
Job  210,  for  the  City  of  Boston.  Four  hundred  covers  were 
embossed  at  a  piece-work  rate  of  $.55  per  100. 

Part  2. — Compute  the  productive  and  the  nonproductive 
hours  on  each  job  number  and  extend  the  piece-work  rates  so 
as  to  obtain  the  amount  chargeable  to  each  job. 

The  time  ticket  was  signed  by  the  foreman,  G.  Flower. 

DECIMAL  SYSTEM  OF  TIME  REPORTING 

In  order  to  facilitate  the  calculation  of  the  elapsed  time  on 
jobs,  the  expedient  of  using  the  decimal  system  of  time  re- 
porting is  sometimes  used.  The  method  of  operating  the  sys- 
tem will  readily  be  understood  by  referring  to  the  following 
example. 

Example. — Design  a  daily  time  ticket  for  use  in  the  bindery 
department  of  a  printing  establishment.  The  top  of  the  ticket 
has  space  for  entering  the  name  of  the  operator,  date  and  job 
number.  The  time  is  to  be  reported  by  means  of  the  decimal 
system  and  the  use  of  code  numbers.  Beginning  at  8.00  A.  M. 


104 


PROBLEMS  IN  COST  ACCOUNTING 


the  day  is  divided  into  six-minute  intervals  until  5.00  p.  M.  is 
reached,  the  lunch  hour  from  12  M.  to  1  p.  M.  being  omitted. 
The  six-minute  intervals  are  numbered  from  0  up,  beginning 
with  the  last  or  5  p.  M.  one  as  follows : 


First 
Column 


Second 
Column 


8.00  A.  M 80 

8.06         79 

etc. 

4.00P.M..  10 


.06 
.12 
.18 
.24 
.30 
.36 
.42 
.48 
.54 
5.00 


The  back  of  the  time  ticket  has  a  code  for  use  in  classifying 
operations  as  follows : 


31  Folding 

32  Gathering 

33  Inserting 

34  Collating 

35  Covering 

36  Sewing 

37  Silk  stitching 

38  Tipping 

39  Gumming 

40  Pasting 

41  Stripping 

42  Padding 


43  Counting 

44  Interleaving 

45  Inclosing 

46  Indexing    • 

47  Tying 

48  Stringing 

49  Tissuing 

50  Wrapping 

51  Taking  apart 

52  Mailing 

53  Bronzing 

54  Addressing 


Operators  report  their  time  against  job  numbers  and  also 
indicate  the  operation  code  number.  When  an  operator  starts 
on  a  job,  he  draws  a  horizontal  line  on  the  time  ticket  through 
the  time  started,  and  when  he  finishes  he  draws  another  line 


LABOR  105 

through  the  time  finished,  and  indicates  the  joh  number  and 
operation  code  number  between  the  two  lines.  Thus,  an  oper- 
ator who  begins  folding  Job  1  at  8  A.  M.  would  draw  a  line 
through  the  time  unit  80.  If  he  finished  at  8.18  A.  M.  he  would 
draw  a  line  through  the  time  unit  77.  The  elapsed  time  would 
equal  8.0  —  7.7  or  .3  hour  (3  six-minute  units),  which  equals 
18  minutes.  If  his  rate  was  30  cents  an  hour,  the  job  would  be 
charged  $.30  X  -3  hour  or  $.09. 

On  Jan.  2,  1917,  at  8  A.  M.  F.  Anderson  started  folding  on 
Job  1,  finishing  at  8.18  A.  M.  He  then  started  gathering  Job 
2,  finishing  at  8.54  A.  M.  He  then  started  collating  Job  3, 
finishing  at  9.36  A.  M.  He  then  started  sewing  Job  4,  finish- 
ing at  10.08  A.  M.  He  then  started  gumming  Job  5,  finishing 
at  10.42  A.  M.  He  then  started  stripping  Job  6,  finishing  at  11 
A.  M.  He  worked  padding  Job  7  until  noon.  At  1  p.  M.  he 
started  counting  on  Job  8,  finishing  at  1.18  P.  M.  He  then 
started  interleaving  on  Job  9,  finishing  at  2.16  p.  M.  The  time 
to  3.06  was  spent  in  inclosing  Job  10  in  envelopes.  Up  to  3.42 
p.  M.  time  was  spent  in  indexing  Job.  11.  F.  Anderson  then 
worked  at  tying  on  Job  12  until  4.30  P.  M.  The  time  to  5  p.  M. 
was  spent  wrapping  up  Job  13. . 

Indicate  the  time  spent  by  F.  Anderson  on  Jan.  2,  1917,  on 
the  time  ticket  designed,  and  enter  the  time  chargeable  to 
each  job  at  his  rate  of  $.30  per  hour  by  using  the  decimal  system 
of  time  reporting. 

Solution 

The  solution  to  the  above  example  is  presented  in  Exhibit  26, 
which  shows  how  F.  Anderson  spent  the  day. 

Problem  34 

Design  a  daily  time  ticket  for  use  in  the  bindery  department 
of  a  job  printery.  Provision  is  to  be  made  on  the  upper  portion 
of  the  ticket  for  entering  the  name  of  the  operator,  date  and  job 


EriPio' 

RAT! 

IEEE'S  NAME 

F/.30 

:  /^^ 
DATE 

fc&2£_[^ 

0. 

TIME 

UNIT 

JOB 

OPER'N 

ELAP5ED 
TIME 

COST 

Son  AM 

on 

.  VV/H.I  I 

06 

12 
•I  Q 

ou 
79 
78 

77 

7 

5f 

.3 

1 

.09 

24 
30 
36 
42 

48 

^  1 

76 
75 
74 
73 
72 

~!-\ 

^. 

5^- 

^ 

.1? 

«— 

O1* 
9.00 
06 

LJ£_ 

t  I 

70 
69 

MJ 

3 

^    - 

jy 

——**-. 

.7 

—  •  

.3-1 

—    —  —  — 

^« 

EXHIBIT  26. — Daily  Time  Ticket  for  Bindery  Department  in  a  Job 

Printery. 
106 


LABOK  107 

number.  The  time  is  to  be  reported  by  means  of  the  decimal 
system  and  the  use  of  code  numbers.  The  day  is  divided  into 
six-minute  intervals  which  are  numbered  as  explained  in  the 
foregoing  example.  The  time  of  the  binder  on  Jan.  3,  1917, 
was  spent  as  follows : 

At  8  A.  M.  A.  Burns  began  collating  on  Job  1,  finishing  at 
9  A.  M.  He  then  started  counting  Job  2,  finishing  at  10.06 
A.  M.  He  then  started  collating  Job  3,  finishing  at  12  M.,  at 
which  time  he  went  to  lunch.  At  1  p.  M.  he  began  folding  Job 
4,  finishing  at  2.36  p.  M.  From  then  until  5  p.  M.  the  time  was 
spent  padding  Job  6. 

Indicate  the  time  spent  by  A.  Burns  on  Jan.  3,  1917,  on 
the  time  ticket  and  enter  the  time  chargeable  to  each  job  at 
his  rate  of  $.40  per  hour  by  using  the  decimal  system  of  time 
reporting.  The  code  numbers  for  the  operation  of  collating, 
counting,  etc.,  will  be  found  under  the  foregoing  example. 

The  ticket  was  signed  by  Henry  Marvin,  foreman. 

PAY  ROLL  FORMS 

In  every  industry  the  preparation  of  the  pay  roll  is  an  im- 
portant part  of  the  routine.  The  pay  roll  for  the  composition 
department  of  a  job  printery  should  be  prepared  so  as  to  sum- 
marize all  of  the  information  given  on  the  daily  time  tickets. 
It  is  necessary  that  the  total  productive  as  well  as  the  nonpro- 
ductive Lours  be  shown.  The  proper  procedure  for  preparing 
the  pay  roll  for  the  composition  department  of  a  job  printery 
will  readily  be  understood  from  the  following  example : 

Example. — Part  1. — Design  a  pay  roll  for  the  composition 
department  in  a  printing  factory  so  as  to  provide  for  entering 
the  productive  and  nonproductive  hours  each  day  for  each  com- 
positor, and  make  the  necessary  entries  to  record  the  following 
information : 


108          PROBLEMS  IN  COST  ACCOUNTING 

On  Monday,  Jan.  8,  1917,  compositor  A.  Hamilton,  who 
has  clock  No.  1,  and  whose  rate  is  $.40  per  hour,  spent  S1/^  hours 
on  productive  work  and  21/-)  hours  on  nonproductive  work ;  com- 
positor F.  Sherry,  clock  No.  2,  whose  rate  is  $.40  per  hour, 
spent  6  hours  on  productive  work  and  2  hours  on  nonproductive 
work ;  compositor  B.  Wolf,  clock  No.  3,  whose  rate  is  $.40  per 
hour,  spent  7  hours  on  productive  work  and  one  hour  on  non- 
productive work ;  compositor  H.  Pratt,  clock  No.  4,  whose  rate  is 
$.40  per  hour,  spent  G1/^  hours  on  productive  work  and  l1/^ 
hours  on  nonproductive  work ;  and  compositor  K.  Smithers,  clock 
No.  5,  whose  rate  is  also  $.40  per  hour,  spent  5%  hours  on  pro- 
ductive work  and  21/4  hours  on  nonproductive  work. 

On  Tuesday,  Jan  9,  1917,  compositors  whose  clock  num- 
bers are  1  to  5,  inclusive,  divided  their  time  as  follows: 

No.  1,  5      hours  productive  and  3      hours  nonproductive; 
No.  2,  4^      «  «  «    3M      " 

No.  3, 7H      "  "  "      Hhour 

No.  4,  G1A      "  "  "     V/2  hours 

No.  5, 5M      "  "  "    2M      " 

On  Wednesday,  Jan.  10,  1917,  compositors  whose  clock 
numbers  are  1  to  5,  inclusive,  spent  their  time  as  follows : 

No.  1,  7%  hours  productive  and    %  hour   nonproductive; 
No.  2,  ll/i      "  "  "      %      "  " 

No.  3,'5H      "  "  "     2^  hours 

No.  4,  6K      "  "  "     1%      " 

No.  5, 7M      "  "  "      %hour 

On  Thursday,  Jan.  11,  1917,  compositors  whose  clock  num- 
bers are  1  to  5,  inclusive,  divided  their  time  as  follows: 

No.  1,  7      hours  productive  and  1      hour   nonproductive; 

No.  2,  5M      "  ">  "     2^  hours 

No.  3,  6M      "  "  "     1%       "  " 

No.  4,  5H      "  "  "     2K       « 

No.  5, 7M      "  "  " 


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109 


110          PROBLEMS  IN  COST  ACCOUNTING 

On  Friday,  Jan.  12,  1917,  compositors  whose  clock  num- 
bers are  1  to  5,  inclusive,  reported  their  time  as  follows : 

No.  1,  6     hours  productive  and  2     hours  nonproductive; 

No.  2,  7K      "  "  "       %hour 

No.  3, 6%      "  "  "     labours  " 

No.  4, 7^     "  "  "      ^hour 

No.  5, 8         «  *  

On  Saturday,  Jan.  13,  1917,  compositors  whose  clock  num- 
bers are  1  to  5,  inclusive,  spent  their  time  as  follows : 

No.  1,     4  hours  productive  and   1    hour  nonproductive; 

Nos.2,  | 

Sand     5       «  « 

4,J 
No.  5,  43/2      "  "      H  hour  nonproductive 

Part  2. — A.     Show  the  total  productive  hours. 

B.  Show  the  total  nonproductive  hours. 

C.  Show  the  amount  due  each  compositor  and  the  total 
amount  of  the  pay  roll. 

D.  Show  the  cost  of  nonproductive  hours. 

E.  Compute  the  average  pay  roll  per  productive  hour. 

F.  Compute  the  ratio  of  nonproductive  labor  to  the  total 
pay  roll. 

Solution 

A  suitable  form  of  pay  roll  for  the  composition  department 
of  a  job  printing  factory  is  shown  in  Exhibit  27.  Productive 
and  nonproductive  time  are  separately  entered  each  day  and  at 
the  end  of  the  week  the  sheet  is  added  in  order  to  obtain  the 
necessary  totals.  By  extending  the  total  hours  worked  by  each 
compositor  at  the  proper  hourly  rate,  the  amount  due  each  is 
arrived  at.  The  average  pay  roll  per  productive  hour  as  well 
as  the  ratio  of  nonproductive  time  to  the  total  pay  roll  are  shown. 


LABOR  111 

Problem  35 

Part  1. — Devise  a  pay  roll  for  the  composition  department 
of  a  job  printery  so  as  to  provide  for  entering  the  productive 
hours  each  day  for  every  compositor,  and  make  the  necessary 
entries  to  record  the  following  information: 

On  Monday,  Jan.  15,  1917,  compositor  A.  Story,  clock  No. 
10,  whose  rate  is  $.45  per  hour,  spent  5  hours  on  productive  work 
and  3  hours  on  nonproductive  work;  compositor  C.  Welhouse, 
clock  No.  11,  whose  rate  is  $.45  per  hour,  spent  7%  hours  on 
productive  work  and  ^4  hour  on  nonproductive  work;  com- 
positor K.  Moran,  clock  No.  12,  whose  rate  is  $.45  per  hour, 
spent  6  hours  on  productive  work  and  2  hours  on  nonproductive 
work ;  and  compositor  B.  Fredericks,  clock  No.  13,  whose  rate 
is  $.45  per  hour,  8  hours  on  productive  work. 

On  Tuesday,  Jan.  16,  1917,  compositors  whose  clock  num- 
bers are  10  to  13,  inclusive,  divided  their  time  as  follows: 

No.    10,  lYi  hours  productive  and  ^  hour  nonproductive; 

Nos.  11  1          . 

and   12,  j8 

No.  13,    4      "  «  «      4  hours  « 

On  Wednesday,  Jan.  17,  1917,  compositors  numbers  10  to 
13,  inclusive,  spent  their  time  as  follows: 

Nos.10, 1 
11  and  >8  hours  productive 

12,  j 
No.  13,    7     u  and  1  hour  nonproductive 

On  Thursday,  Jan.  18,  1917,  compositors  numbers  10  to 
13,  inclusive,  spent  their  time  as  follows: 

No.  10,  6%  hours  productive  and  1^  hours  nonproductive; 

No.  11, 5M      *  u  "    2%      " 

No.  12, 5%     "  "    2%      " 

No.  13, 4^      «  «  «    3H      *  * 


112          PROBLEMS  IN  COST  ACCOUNTING 

On  Friday,  Jan.  19,  1917,  compositors  numbers  10,  11,  12 
and  13  spent  7^/2  tours  each  on  productive  time  and  lost  ^ 
hour  on  account  of  a  fire. 

On  Saturday,  Jan.  20,  1917,  all  of  the  compositors  worked 
5  hours  on  productive  work  except  No.  13,  who  worked  4  hours 
on  productive  work  and  1  hour  on  nonproductive  work. 

Part  2. — A.  Show  the  total  productive  hours. 

B.  Show  the  total  nonproductive  hours. 

C.  Show  the  amount  due  each  compositor  and  the  total 
amount  of  the  pay  roll. 

D.  Show  the  cost  of  nonproductive  hours. 

E.  Compute  the  average  pay  roll  per  productive  hour. 

F.  Compute  the  ratio  of  nonproductive  labor  to  the  total 
pay  roll. 


The  calculation  of  the  amount  earned  by  the  operators  in  an 
industry  often  has  many  interesting  features.  In  the  weaving 
department  of  a  textile  mill  piece  work  predominates,  and  there- 
fore a  careful  record  has  to  be  kept  of  the  productive  hours  of 
each  operator.  The  method  of  procedure  is  to  attach  coupons 
to  the  factory  order  which  contains  all  the  information  required 
for  the  production  of  a  fabric. 

There  are  as  many  coupons  attached  to  the  order  as  there 
are  cuts  to  be  made.  As  cuts  are  taken  off  from  the  warp  the 
coupons  are  removed  and  sent  into  the  office  for  use  in  making 
up  the  pay  roll. 

In  weaving  mills  the  piece  work  is  computed  upon  the  or- 
ganization of  a  basic  fabric.  The  following  example  will  il- 
lustrate the  method  of  calculation : 

Example. — Part  1. — Design  a  working  sheet  for  the  pur- 
pose of  making  the  necessary  extensions  to  compute  the  piece 


LABOK  113 

workers'  earnings  in  the  weave  room  of  a  textile  mill,  making 
fancy  cotton  shirtings  and  dress  goods.  The  weavers'  names 
appear  at  the  left-hand  side,  and  the  names  of  the  fabrics  woven, 
together  with  the  piece-work  rates,  at  the  top  of  the  sheet.  The 
number  of  pieces  or  cuts  woven  by  an  operator  when  extended 
at  the  proper  piece-work  rates  gives  the  amount  earned. 

The  basis  for  making  the  piece-work  rates  is  as  follows:  a 
fabric  having  70  picks  to  the  inch  is  paid  for  at  the  rate  of  one 
dollar  per  cut  of  75  yards.  The  warps  are  900  yards  long  and 
are  cut  into;  twelve  75-yard  lengths.  The  warp  threads  run 
lengthwise  o£  the  cloth  and  the  picks  crosswise.  In  addition  to 
the  price  of!  one  dollar  per  cut  for  a  basic  fabric  having  70 
picks  to  an  inch,  an  allowance  of  five  cents  is  made  for  each  * 
harness  used:  in  excess  of  the  two  harnesses  used  on  plain  goods. 
Thus,  a  70  ^>ick  fabric  requiring  four  harnesses  would  be  paid 
for  at  the  rate  of  $1.10  per  cut  of  75  yards. 

The  rate  per  cut  for  weaving  increases  in  proportion  to  the 
number  of  picks  to  the  inch.  Thus,  an  80-pick  fabric,  two- 
harness  work,  would  be  paid  for  at  rate  of  $1.142  per  cut, 
computed  as  follows : 

70  :$1.00  ::80  :  x 

70  x  =  $80. 
x  =  $1.142 

For  each  harness  used  in  excess  of  the  two  required  for  plain 
goods  five  cents  is  added  to  above  rate. 

The  number  of  picks  to  the  inch  in  the  filling  determines  the 
fate  of  production.  It  ordinarily  takes  34  working  days  to  weave 
900  yards  of  cotton  goods  having  70  picks  to  the  inch. 

The  fabrics  made  by  the  Abercrombie  Weaving  Company 
are  as  follows: 

irThe  harness  is  the  device  on  the  loom  used  for  raising  and  lowering 
tl-e  warp  threads  in  the  process  known  as  "shedding"  which  precedes  the 
>-o"css  of  "picking"  and  "beating  up"  in  the  operation  of  a  loom. 


114 


PROBLEMS  IN  COST  ACCOUNTING 


Name  of  Fabric 


Picks 
per  Inch 


Number 
Harnesses  Used 


Gaze  Marvel 70 

Gauze  Mon 70 

Silk  Strap 80 

Drap  Boucle 90 

File  de  Veil 100 

Aberfoyle  Stripe 100 

Gaily  Lawn 100 

Satinteen 110 

Lawn 120 

Moore's  Patent . . . . : 130 

Fine  Silk 140 

Booth  Stripe 140 

Pink  Voile 140 

Mercerized  Lawn 140 

Sateen  Lawn 150 

Chester  Satin 160 

Vincent  Stripe 160 

Mercerized  Net 170 

Milk  Sateen 170 

Fine  Crepe 180 

Oriole  Voile..  210 


2 
4 
3 
5 
3 
4 
5 
4 
5 
5 
5 
7 
8 

10 
5 
7 

10 
4 
5 

10 

24 


During  the  week  ended  Jan.  7,  1917,  coupons  from  loom 
tickets  were  received  in  the  office  showing  that  75-yard  cuts 
had  been  taken  off  from  warps  as  follows: 

John  Spinney,  3  cuts  Gaze  Marvel, 
7  cuts  Satinteen, 

2  cuts  Booth  Stripe. 

Fred'k  Lyons,  4  cuts  Moored  Patent, 

5  cuts  Fine  Silk, 

3  cuts  File  de  Veil. 

Frank  Pratt,    4  cuts  Pink  Voile, 

6  cuts  Mercerized  Lawn, 
2  cuts  Chester  Satin. 


Henry  Siebold,  6  cuts  Oriole  Voile, 
6  cuts  Lawn. 


LABOR 


115 


Arthur  Ford, 


B.  Saunders, 


R.  Smithers, 


5  cuts  Fine  Crepe, 
5  cuts  Gaze  Marvel, 
2  cuts  Milk  Sateen. 

7  cuts  Gauze  Mon, 
4  cuts  Silk  Strap, 
1  cut  Drap  Boucle. 

4  cuts  Aberfoyle  Stripe, 
4  cuts  Gaily  Lawn, 
4  cuts  Sateen  Lawn. 


N.  Fredericks,  1  cut  Sateen  Lawn, 

4  cuts  Vincent  Stripe, 
7  cuts  Mercerized  Net. 

Make  the  necessary  extensions  to  compute  the  amount  earned 
by  each  weaver  and  enter  the  amount  on  the  working  sheet. 

Part  2. — Design  a  pay  roll  form  for  a  weaving  department 
in  a  textile  mill  and  make  the  necessary  entries  to  record  the 
.  following  information : 

A.  Amount  due  each  operator  as  computed  in  Part  1. 

B.  Deductions  from  total  amount  as  follows: 


for  hole  in  fabric. 

for  broken  thread. 

for  dropped  thread  in  warp. 


Fines 

Henry  Siebold,  $1.00 

K.  Smithers,  .  10 

N.  Fredericks,  .30 
Rent 

John  Spinney,  $5 . 00 

Fred'k  Lyons,  5.00 

Frank  Pratt,  5.00 

Henry  Siebold,  5.00 

Arthur  Ford,  5.00 
Purchases 

B.  Saunders,  $2.00 

K.  Smithers,  3.00 

F.Lyons,  1.00 

F.Pratt,  2.00 

C.  Net  amount  due  each  weaver.    Pay  roll  is  for  week  end- 
ing Jan.  7,  and  is  No.  1. 


PAY  ROLL  CALCULATION  SHEET 

FOR  WEEK  ENDED  $***>>  7-  '<?'?• 

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118 


PEOBLEMS  IN  COST  ACCOUNTING 


The  solution  to  the  foregoing  problems  is  presented  in 
Exhibits  28  and  29. 

Problem  36 

Prepare  a  sheet  suitable  for  making  the  necessary  calcula- 
tions of  the  earnings  by  piece-work  weavers  in  a  textile  mill. 
The  names  of  the  weavers  are  to  be  entered  on  the  left-hand 
side  of  the  sheet  and  the  names  of  the  fabrics  woven  together 
with  the  piece-work  rates  at  the  top  of  the  form.  The  number 
of  cuts  woven  times  the  piece-work  rate  per  cut  gives  the  amount 
earned. 

The  basic  fabric  has  70  picks  to  an  inch  and  is  paid  for  at 
the  rate  of  $1.10  per  cut  of  75  yards.  An  additional  allow- 
ance of  five  cents  is  made  for  each  harness  used  in  excess  of 
two  harnesses. 

The  fabrics  made  by  the  York  Company  are  as  follows : 


Name  of  Fabric 


Picks, 
per  Inch 


Number  of 
Harnesses  Used 


Bedford  Cord  Silk 70 

Russian  Cord  Silk 80 

Crepe  Silk 90 

Standard  Madras 95 

Special  Madras 100 

Crepe  Glace" 105 

Madras  de  Luxe 110 

Novelty  Voile 120 

Nebula  Voile 130 

Insertion  Tissue 140 

Jacquard  Zephyr 150 

Grampion  Oxford 155 

Cobweb  Voile 160 

Tissue  Tropeque 165 

Bordered  Novelty 175 

Grampion  Chambrey .' 180 

Jacquard  Messaline 185 

Mahratta  Cloth 190 

Shimmer  Silk . .  200 


2 
2 
3 
4 
5 
4 
2 
7 
10 
3 
2 
2 

20 
20 
24 
16 
16 
16 
16 


LABOE  119 

During  the  week  ended  Jan.  13,  1917,  coupons  from  loom 
tickets  were  received  in  the  office  showing  that  75-yard  cuts 
had  been  taken  from  warps  as  follows : 

Henry  Sharpe,         3  cuts,  Bedford  Cord,  Silk, 
3     "     Special  Madras, 
3     "     Nebula  Voile, 

3  "     Shimmer  Silk. 

John  Bacon,  6  cuts,  Russian  Cord  Silk, 

1  cut,   Crepe  Silk, 

1  u     Standard  Madras, 

4  cuts,  Crepe  Glace1. 

Philip  Moore,          6  cuts,  Madras  de  Luxe, 
6    "     Novelty  Voile. 

Julius  Spooner,        4  cuts,  Insertion  Tissue, 
4    "     Jacquard  Zephyr, 

2  "     Grampion  Oxford, 
2    "     Cobweb  Voile. 

Rudolph  Springer,  1  cut,  Mahretta  Cloth, 

1     "  Jacquard  Messaline, 

1     u  Grampion  Chambrey, 

9    "  Bordered  Novelty. 

Charles  Booth,       12  cuts,  Tissue  Tropeque. 

Make  the  necessary  extensions  to  compute  the  earnings  of 
each  weaver  and  enter  the  amounts  on  the  working  sheet. 

Problem  37 

Prepare  a  pay  roll  form  for  the  weaving  department  in  a 
textile  mill  and  make  the  necessary  entries  to  record  the  follow- 
ing information: 

A.  Amount  earned  by  each  operator. 

B.  Deductions  from  total  amount  earned  as  -follows : 

Broken  threads,  at  10  cents  each. 
Henry  Sharpe,  3  threads, 

John  Bacon,  10      " 

Philip  Moore,  1  thread. 


120          PROBLEMS  IN  COST  ACCOUNTING 

Rent 

Henry  Sharpe,  $5.00 

John  Bacon,  6 . 00 

Rudolph  Springer,  6.00 

Charles  Booth,  7.00 

Purchases 
John  Bacon,  $3.00 

C.  Net  amount  due  each  weaver.     Pay  roll  is  for  week 
ended  Jan.  13,  1917,  and  is  No.  2. 


PART  IV 
OVERHEAD 


CHAPTER  VIII 
INDIRECT  EXPENSE 

Indirect  expense  or,  as  it  is  sometimes  called,  overhead  ex- 
pense, comprises  many  items,  such  as  nonproductive  labor,  sup- 
plies, repairs,  power,  light,  heat,  inspection  and  supervision. 
It  is  generally  conceded  that  of  all  the  elements  of  cost  the  most 
difficult  one  to  calculate  is  the  item  of  overhead. 

Wherever  possible,  indirect  expenses  should  be  grouped  un- 
der heads,  such  as  power  expenses,  rent  and  administration. 
Take  the  case  of  power.  The  first  duty  of  the  accountant  is  to 
ascertain  the  total  power  cost  for  a  given  period  of  time,  and 
not  to  omit  any  item  of  cost  incurred  because  of  the  production 
of  power.  His  second  problem  is  to  divide  this  total  cost  among 
the  various  departments  of  the  factory  using  power,  and  ulti- 
mately to  apportion  a  part  of  the  charge  to  each  job  or  unit  of 
goods  produced. 

In  the  case  of  power  all  labor,  fuel,  repairs,  depreciation, 
oils,  supplies  and  rent,  applicable  to  the  generation  and  trans- 
mission of  power,  should  be  charged  directly  against  the  power 
plant.  The  sum  of  these  charges  constitutes  the  total  cost  of 
power,  and  the  total  horse  power  hours  used  during  the  period 
divided  into  this  cost  for  the  period  will  give  the  cost  per  horse- 
power hour.  This  gives  the  unit  cost  for  distributing  the  cost 
of  power  to  each  department  on  the  basis  of  horsepower  hours 
it  actually  used. 

Rent  and  building  expense  are  usually  apportioned  to  de- 
partments or  divisions  on  the  basis  of  floor  space  occupied. 

The  custom  is  to  apportion  the  other  indirect  expenses  to 

123 


124          PKOBLEMS  IN  COST  ACCOUNTING 

the  various  departments  on  similar  equitable  bases  suggested  by 
the  nature  of  the  service  or  the  work  of  the  department.  The 
expenses  of  a  general  character  that  apply  to  the  factory  as  a 
whole  are  grouped  together  and  then  applied  to  the  various  de- 
partments in  accordance  with  some  method  which  is  supposed 
to  give  each  its  approximate  share. 

As  each  unit  of  the  product  passes  through  the  various  de- 
partments, the  overhead  is  applied  to  it  in  such  a  way  that  it 
is  made  to  bear  its  proportion  of  the  amount  allotted  to  each  de- 
partment. There  are  several  well-defined  plans  in  vogue  for 
applying  overhead,  among  which  the  following  are  the  best 
known. 

1.  Overhead  applied  as  a  percentage  of  direct  labor  costs. 

2.  Overhead  applied  on  the  basis  of  a  rate  per  productive 
hour. 

3.  Overhead  applied  on  the  basis  of  machine  hours. 

4.  Overhead  applied  on  the  basis  of  the  cost  of  material  and 
labor. 

5.  Overhead  and  labor  together  applied  on  the  basis  of  the 
"sold  hours." 

6.  Overhead  applied  on  the  basis  of  the  number  of  units  of 
the  product  made. 

Reference  to  the  following  examples  will  show  how  some 
of  the  problems  involved  in  the  practical  handling  of  overhead 
are  solved. 

OVERHEAD  OR  BURDEN  RATES 

The  two  most  common  methods  for  distributing  overhead  or 
indirect  expense  so  as  to  ascertain  the  burden  to  be  borne  by  a 
department,  piece  or  job,  are  what  is  known  as  the  percentage 
on  direct  labor  method  and  the  productive  hours  method.  The 
former  method  consists  of  ascertaining  the  ratio  of  the  indirect 
expense  to  the  direct  labor  in  each  particular  department.  The 


OVERHEAD 


125 


latter  method  consists  of  calculating  the  rate  per  productive  hour 
for  expense.  This  is  done  by  dividing  the  indirect  expense  of 
any  department  by  the  number  of  its  productive  hours. 

It  is  generally  thought  desirable  to  compute  the  ratio  of 
shipping,  selling  and  general  expenses  to  the  cost  of  sales,  as  a 
basis  for  arriving  at  the  cost  to  make  and  sell.  The  method 
consists  of  dividing  the  sum  of  the  shipping,  selling  and  general 
expenses  of  a  business  by  the  cost  of  sales  for  a  given  period  in 
order  to  arrive  at  the  ratio  required. 

The  following  examples  will  illustrate  the  method  of  mak- 
ing the  calculation  of  the  burden  rates  according  to  the  percent- 
age on  direct  labor  method  and  the  productive  hours  method, 
and  also  the  ratio  of  shipping,  selling  and  general  expenses  to 
the  cost  of  sales. 

Example. — Part  1. — From  the  following  data  compute  the 
rates  for  distributing  burden  according  to  the  method  of  per- 
centage on  direct  labor. 


Factory  Burden,  1917 

Total 

Dept.  A 

Dept.  B 

Dept.  C 

Indirect  Labor        

$7,150 
4,050 
8,460 
520 
435 
2,710 
5,405 
4,950 
700 
1,908 

$2,450 
1,250 
2,750 
194 
130 
950 
1,550 
1,600 
200 
760 

$2,950 

1,150 
3,910 
242 
200 
1,240 
2,650 
2,150 
710 
950 

$1,750 

1,250 
1,800 
84 
105 
520 
1,205 
1,200 
190 
198 

Building  Expense  

Power  

Insurance  

Taxes  

Depreciation  

Repairs  

General  Factory  Expense  .... 
Miscellaneous  Supplies  
Miscellaneous  Expense  

Total  

$36,288 

$11,834 
$35,502  . 

$16,152 
$64,608 

$8,302 
$16,604 

Direct  Labor  

126 


PEOBLEMS  IN  COST  ACCOUNTING 


Part  2. — What  would  the  rates  be  for  distributing  burden 
according  to  the  productive  hours  method,  using  above  data  and 
taking  the  productive  hours  as  17,624  in  Dept.  A,  30,842  in 
Dept.  B  and  55,075  in  Dept.  C  ? 

Part  3. — From  the  following  data  compute  the  ratio  of  ship- 
ping, selling  and  general  expenses  separately  to  the  cost  of  sales 
for  1917,  which  amounted  to  $120,000. 

SHIPPING,  SELLING  AND  GENERAL  EXPENSES,  1917 


Distribution 

Total 

Shipping 

Selling 

General 

Building  expense  

$1,150 
1,550 
12,700 
4,800 
3,000 
1,512 
195 
300 
150 
100 
2,270 
1,200 
800 
275 

$550 

1,550 

$600 

Labor  

Salaries  

$9,100 

3,600 
4,800 

Officers'  salaries  

Commissions  

3,000 
1,500 

Advertising  

12 
15 
100 
50 

Insurance  

180 
200 
100 
100 
2,270 
1,200 
800 
100 

Taxes  

Depreciation  

Repairs    

Delivery  expense      

Discount  on  sales   

Reserve  for  Bad  Debts  

Miscellaneous  Expenses     .... 

75 

100 

Total  

$30,002 

$2,352 

$13,700 

$13,950 

Solution 

Part  1. — Distribution  of  overhead  or  burden  according  to 
percentage  on  direct  labor  method. 


Dept.  A. 

Overhead 
Direct  labor 
$11,834  -=- 


$11,834 
35,502 
!5,502  =  33. 3  per  cent. 


OVERHEAD  127 

Dept.  B. 

Overhead  $16,152 

Direct  labor  $64,608 

$16,152  -T-  $64,608  =  25  per  cent. 

Dept.  C. 

Overhead  $8,302 

Direct  labor  $16,604 

$8,302  -T-  $16,604  =  50  per  cent. 

Part  2. — Distribution  of  overhead  or  burden  according  to 
"productive  hours"  method. 

Dept.  A. 

Overhead  $11,834 

Productive  hours     17,624 

$11,834  -T-  17,624  =  67.1  cents  per  hour. 

Dept.  B. 

Overhead  $16,152 

Productive  hours     30,842 

$16,152  -r-  30,842  =  52.3  cents  per  hour. 

Dept.  C. 

Overhead  $8,302 

Productive  hours     55,075 

$8,302  -T-  55,075  =  15  cents  per  hour. 

Part  3. — Ratio  of  shipping,  selling  and  general  expenses 
to  cost  of  sales. 

Shipping,  selling  and  general  expenses $30,002 

Cost  of  sales $120,000 

$30,002  -f-  $120,000  =  25  per  cent. 

Problem  38 

Part  1. — From  the  following  data  make  a  calculation  of 
the  ratio  of  indirect  expense  to  direct  labor: 


128 


PROBLEMS  IN  COST  ACCOUNTING 


Factory  Burden,  1917 

Total 

Dept.  A 

Dept.  B 

Dept.  C 

Changes  in  plant  

$350 
950 

95 
37 
100 
3,600 
10,500 
10,500 

1,700 
4,300 
3,000 
635 
1,250 
275 

$100 

250 
20 
10 
25 
1,000 
3,000 
2,500 

500 
1,100 
800 
200 
300 
90 

$120 

300 
30 
12 
35 
1,200 
3,500 
3,500 

550 
1,400 
1,000 
210 
400 
75 

$130 

400 
45 
15 
40 
1,400 
4,000 
4,500 

650 
1,800 
1,200 
225 
550 
110 

Depreciation  

Gas  

Injuries  

Insurance  

Light,  Heat,  Power  

Nonproductive  Labor  

Rent  

Salaries: 
Administration  

Clerical  

Inspection  

Taxes  

Waste,  Oils,  Chemicals  

Unclassified  

Total  

$37,292 

$9,895 

$12,332 

$15,065 

Direct  Labor  

$19,790 

$32,880 

$60,260 

Part  2. — Make  a  calculation  of  the  rate  per  hour  for  burden 
according  to  the  productive  hours  metho'd,  using  the  figures 
given  in  Part  1  and  taking  the  productive  hours  as  5,937  in 
Dept.  A,  9,8651/0  in  Dept.  B,  and  18,078  in  Dept.  C. 

Part  3. — What  is  the  ratio  of  shipping,  selling  and  general 
expenses  to  the  cost  of  sales  where  the  former  amounts  to 
$75,000  and  the  latter  to  $225,000? 

DISTRIBUTION  OF  INDIRECT  EXPENSE  IN  TEXTILE 

MILLS 

When  various  vegetable,  animal  or  mineral  fibers  are  made 
into  a  continuous  thread,  yarn  is  formed,  and  when  two  differ- 
ent sets  of  threads  are  interlaced  the  product  is  called  cloth. 
The  principal  operation  which  has  to  do  with  making  yarn. 


OVERHEAD  129 

is  known  as  spinning,  and  consists  of  giving  a  twist  to  the  fibers 
and  of  drawing  them  out  to  the  proper  size.  Cloth  is  made  on 
a  loom  which  weaves  the  filling  yarn  with  the  warp  yarn.  The 
former  rims  across  the  cloth  and  the  latter  lengthwise.  In  the 
textile  industry  the  yarn  count  depends  upon  the  number  of 
fixed  lengths  in  a  pound  according  to  the  following  systems. 

Run  (Woolen) 
1,600  yards     per  Pound 

Cotton 
840      "        per  Pound 

Worsted  < 

560      "        per  Pound 

Linen 
300      "       per  Pound 

If  there  are  30  hanks  containing  840  yards  each  in  a  pound 
of  cotton  yarn,  the  count  or  yarn  number  is  30.  The  organiza- 
tion of  cloth,  as  the  specification  for  the  design  is  called,  de- 
pends upon  the  number  of  threads  of  the  various  counts  per 
inch  in  the  filling  and  warp.  Thus,  a  print  cloth  may  be  de- 
scribed as  having  64  threads  per  inch  of  No.  36  yarn  in  the 
filling  and  64  threads  per  inch  of  No.  40  in  the  warp.  It  takes 
longer  to  spin  a  pound  of  fine  yarn  than  it  does  a  pound  of 
coarse  yarn,  and  it  also  takes  longer  to  weave  a  yard  of  fine 
goods  than  it  does  a  yard  of  coarse  goods.  The  fineness  of  the 
product  has  a  direct  bearing  on  the  rate  of  production.  In 
order  to  explain  the  relation  which  the  rate  of  production  bears 
to  the  count  for  yarn  and  the  picks  (number  of  threads  in  the 
filling)  per  inch  for  cloth,  reference  will  be  made  to  the  two 
graphic  charts  shown  in  Exhibits  30  and  31. 

The  production  in  a  spinning  mill  depends  upon  the  num- 
ber of  pounds  produced  per  spindle  per  week.  Warp  yarns 


130 


PROBLEMS  IN  COST  ACCOUNTING 


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EXHIBIT  30. — ProJuc  ion  Table  of  Ring  Warp  and  Ring  Filling  Yarn. 


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YARDS    OF  '  CLOTH  PER  LOOM   PER  DAY  OF   IO   HOURS 

EXHIBIT  31. — Production  Table  Showing  Yards  Produced  by  a  Loom. 


OVERHEAD  131 

produce  at  a  little  different  rate  than  filling  yarns.  Reference 
to  Exhibit  30  shows  the  pounds  produced  per  spindle  per 
week  corresponding  to  different  yarn  numbers.  It  will  readily 
be  seen  that  yarn  of  the  higher  numbers  produces  at  a  much 
slower  rate  than  coarse  yarn.  This  is  because  the  number  of 
fixed  lengths  to  a  pound  increases  in  direct  ratio  to  the  yarn 
count.  For  example :  the  production  of  No.  40  yarn  filling  is 
shown  to  be  one  pound  per  week  of  60  hours,  while  for  No.  15 
yarn  the  output  is  3.65  pounds  for  the  same  period. 

In  a  weaving  mill  the  production  depends  upon  the  number 
of  yards  produced  per  loom  per  week.  The  rate  per  loom  is 
governed  by  the  picks  per  inch  in  the  fabric.  This  is  because 
the  picker  stick  can  drive  the  shuttle  containing  the  filling  yarn 
only  a  certain  number  of  times  a  minute  across  the  loom ;  a  fine 
fabric  with  a  great  many  threads  or  picks  per  inch  therefore 
takes  longer  to  produce  than  a  coarse  one.  This  is  shown  graph- 
ically in  Exhibit  31.  The  yards  of  cloth  produced  per  loom  per 
day  of  10  hours  corresponding  to  the  picks  per  inch  are  given 
for  three  different  loom  speeds.  For  example,  a  loom  weaving 
at  the  rate  of  100  picks  per  minute  would  produce  14.5  yards 
of  cloth  containing  115  picks  per  inch  in  a  ten-hour  day,  while 
the  same  loom  would  produce  23.8  yards  of  cloth  containing 
70  picks  to  the  inch  in  10  hours. 

DISTRIBUTION   OF    SPINNING   MILL   OVERHEAD 

When  a  spinning  mill  is  in  operation  it  costs  as  much  to  op- 
erate one  spindle  as  another.  The  plan  adopted  by  the  Tariff 
Board  for  distributing  the  indirect  expense  in  a  spinning  mill  is 
to  apply  the  overhead  against  the  different  yarns  produced,  on 
the  basis  of  the  number  of  spindles  used  on  each  count.  The 
following  example  will  show  the  method  of  distribution. 


132 


PROBLEMS  IN  COST  ACCOUNTING 


Example. — Find  the  cost  per  pound  for  indirect  expense  in 
the  New  England  Spinning  Company's  mill  for  the  month  of 
January,  1917.  The  amount  to  be  apportioned  is  $30,997.72 
and  the  basis  of  apportionment  to  be  used  is  the  one  approved 
by  the  Tariff  Board.  The  following  table  shows  the  pounds 
of  yarn  produced  and  the  number  of  spindles  operated  on  each 
yarn  number. 

PRODUCTION  TABLE 


Yarn  Number 

Pounds  Produced 

Number  of  Spindles 

22  

100,000 

2,200 

24.;  

150,000 

3,600 

26  

20,000 

520 

28  

70,000 

1,960 

30  

110,000 

3,300 

32  

1,000 

32 

34  

700,000 

23,800 

36  

65,000 

2,340 

38  

200,000 

7,600 

40.  ..  

400,000 

16,000 

42  

720,000 

30,240 

44  

400,000 

17,600 

46.  ..  

175,000 

8,050 

48  

20,000 

960 

50  

10,000 

500 

52  

10,000 

520 

3,151,000 

119,222 

$30,997 . 72  -=-  1 19 . 222     =  $  .26  per  spindle. 

2,200  spindles  X  $.26      =  $572  total  overhead  on  yarn  No.  22. 

$572  -r-  100,000  pounds    =  $.00572  overhead  per  pound  on  yarn  No.  22. 

The  overhead  per  pound  for  the  other  numbers  is  calcu- 
lated in  the  same  manner.  The  following  table  gives  the  re- 
sults of  the  calculations. 


OVERHEAD 
Solution 


133 


Yarn  Number 

Indirect  Expense 

Indirect  Expense 

22       

$572.00 

Per  Pound 
$.00572 

24     

936.00 

.00624 

26       

135.20 

00676 

28         

509.60 

00728 

30  

858.00 

.0078 

32  

8.32 

.00832 

34  

6,188.00 

.00884 

36  

608.40 

.00936 

38  

1,976.00 

.00988 

40  

4,160.00 

.0104 

42  

7,862.40 

.01092 

44  

4,576.00 

.01144 

46  

2,093  00 

01196 

48  

249.60 

01248 

50  

130.00 

.013 

52  

135  20 

.01352 

- 

$30,997.72 

Note:  In  the  above  example  it  will  be  noticed  that  the  in- 
direct expense  per  pound  increases  at  the  rate  of  $.00052  for 
each  count  given. 

When  it  is  remembered  that  the  number  of  spindles  run  on  a 
specified  size  of  yarn  determines  the  production  it  will  be  seen 
that  it  is  perfectly  fair  to  make  a  charge  against  each  size  of  yarn 
produced  on  the  basis  of  the  number  of  spindles  run  on  it  for  the 
period. 

Problem  39 

From  the  following  table  giving  the  pounds  of  yarn  pro- 
duced and  the  number  of  spindles  operated  on  each  yarn  num- 
ber find  the  indirect  expense  per  pound.  The  total  indirect  ex- 
pense to  be  apportioned  is  $18,565.00. 


134 


PKOBLEMS  IN  COST  ACCOUNTING 


Yarn  Number 

Pounds  Produced 

Number  of  Spindles 

18   

45,000 

810 

20  

5,000 

100 

22  

110,000 

2,420 

24  

71,000 

1,704 

26  

3,500 

91 

28  

225,000 

6,300 

30  

44,000 

1,320 

32  

600,000 

19,200 

34  

35,000 

1,190 

36  

27,000 

972 

38  

10,000 

380 

40  

45,000 

1,800 

42  

7,500 

315 

44  

12,000 

528 

Total  

1,240,000 

37,130 

DISTRIBUTION  OF  WEAVING  MILL  OVERHEAD 

In  a  weaving  mill  the  expense  of  operating  looms  of  a  simi- 
lar size  is  the  same  for  one  loom  as  another.  The  method 
adopted  by  the  Tariff  Board  for  distributing  indirect  expense 
against  the  various  fabrics  produced  in  a  weaving  mill  is  known 
as  the  loom  day  system.  The  procedure  consists  in  finding  the 
cost  of  operating  a  loom  one  day  and  in  assessing  each  fabric 
for  indirect  expense  on  the  basis  of  the  number  of  working  days 
the  fabric  is  on  the  loom.  The  following  example  illustrates 
the  method  of  calculation. 

Example. — Find  the  cost  per  yard  for  indirect  expense  in 
the  New  England  Weaving  Company's  mill  for  the  month  of 
January,  1917.  The  amount  to  be  apportioned  is  $12,240.50, 
and  the  basis  of  apportionment  to  be  used  is  the  one  approved 
by  the  Tariff  Board.  The  following  table  shows  the  number  of 
yards  produced  and  the  corresponding  loom  days. 


Name  of  Fabric 

Picks, 
per  Inch 

Yards 
Produced 

Number  of 
Loom  Days 

Gaze  Marvel  

55 

2,200 

84.7 

Silk  Voile  

60 

3,600 

151.2 

Striped  Messaline  

65 

520 

23.7 

Drap  Voile  

70 

1,960 

96.0 

Mercerized  Voile  

75 

3,300 

173.2 

Silk  Voile  

80 

120 

6.7 

Bon  Ton  Gauze  

85 

3,800 

226.1 

Striped  Madras  

90 

2,340 

147.4 

Silk  Net  

95 

7,600 

505.4 

Satin  Taffeta  

100 

1,600 

112.0 

Standard  Lawn  

105 

3,020 

222.0 

Celtic  Linen  

110 

7,600 

585.2 

Silk  Zephyr  

115 

900 

•    72.5 

Striped  Madras  

120 

500 

42.0 

Total  

39,060 

2,448.1 

$12,240.50  -T-  2,448. 1  =  $5  per  loom  day. 

84 . 7  X  $5  =  $423 . 50  overhead  on  Gaze  Marvel. 

$423 . 50  -=-  2,200  =  $ .  1925  overhead  per  yard. 

Solution 


Name  of  Fabric 

Picks, 
per  Inch 

Yards 
Produced 

Number 
of  Loom 
Days 

Total  Overhead 

Indirect 
Expense 
per  Yard 

Gaze  Marvel  

55 

2,200 

84.7 

$423.50 

$.1925 

Silk  Voile  

60 

3,600 

151.2 

756.00 

.21 

Striped  Messaline  .... 
Drap  Voile  

65 
70 

520 
1,960 

23.7 
96.0 

118.50 
480.00 

.22788 
.24489 

Mercerized  Voile  

75 

3,300 

173.2 

866.00 

.26242 

Silk  Voile  

80 

120 

6.7 

33.50 

.27917 

Bon  Ton  Gauze  

85 

3,800 

226.1 

1,130.50 

.2975 

Striped  Madras  

90 

2,340 

147.4 

737.00 

.31495 

Silk  Net....  

95 

7,600 

505.4 

2,527.00 

.3325 

Taffeta  

100 

1,600 

112.0 

560.00 

.35 

Lawn  

105 

3,020 

222.0 

1,110.00 

.36755 

Linen  

110 

7,600 

585.2 

2,926.00 

.385 

Silk  Zephyr  

115 

900 

72.5 

362.50 

.40277 

Striped  Madras  

120 

500 

42.0 

210.00 

.4200 

Total  

39,060 

2,448.1 

$12,240.50 

135 


136 


PHOBLEMS  IN  COST  ACCOUNTING 


The  overhead,  or  indirect  expense,  per  yard  for  the  fabrics 
other  than  Gaze  Marvel  is  calculated  in  the  same  manner.  The 
results  of  the  calculations  are  presented  in  the  preceding  table. 

Problem  40 

From  the  following  table  giving  the  yards  produced  and  the 
number  of  loom  days  for  each  fabric  find  the  indirect  expense 
per  yard.  The  total  indirect  expense  to  be  apportioned  is 
$5,846.00. 


Name  of  Fabric 

Picks  per  Inch 

Yards  Produced 

Number 
of 
Loom  Days 

Silk  Novelty  

60 

1,000 

35.9 

Bedford  Cord  

65 

750 

29.3 

Russian  Silk  

70 

1,500 

63.0 

Standard  Madras  

75 

3,000 

135  1 

Crepe  Glac4  

80 

4,000 

192.3 

Madras  de  Lux  

85 

1,750 

89.2 

Novelty  Voile  

90 

6,000 

324.3 

Insertion  Tissue  

95 

7,500 

426.1 

Celtic  Oxford  

110 

1,500 

98.7 

Jacquard  Messaline  

125 

900 

67.6 

Total  

27,900 

1,461.5 

BURDEN  RATES  IN  FOUNDRIES 

In  iron  foundries  it  is  necessary  to  make  a  separation  of 
overhead  expense  between  the  cupola  *  and  other  divisions  of  the 
work.  The  expense  chargeable  to  the  cupola  is  distributed  on 
the  basis  of  the  tons  of  castings  produced,  while  the  other  ex- 
pense is  applied  on  the  basis  of  the  productive  hours  of  labor  of 
the  various  classes. 

1  The  cupola  is  the  large  iron  retort  or  furnace  in  which  the  pig  iron  ia 
mixed  with  coke  and  lime  and  heated  \inder  forced  draught  so  that  after  the 
process  the  molten  metal  can  be  poured  out  into  molds. 


OVERHEAD 


137 


In  figuring  the  overhead  on  a  job  it  is  necessary  to  make  two 
calculations,  one  for  the  cupola  expense,  which  is  applied  on 
the  basis  of  weight,  and  one  for  the  other  expenses,  which  are 
distributed  on  the  basis  of  time  taken  on  the  job. 

The  method  of  computing  the  overhead  on  the  castings  for 
an  engine  is  as  follows : 

Example. — Part  1. — Find  the  overhead  cost  per  ton  of  pro- 
duct for  cupola  expense  and  per  hour  of  labor  for  each  depart- 
ment in  an  iron  foundry  from  the  following  data : 


Department 

Annual 
Expense 

Production, 
Lbs. 

Productive 
Hours 

Cupola        

$50,000 

5,000,000 

Bench  Work  

7,000 

750,000 

Side  Floor          

4,500 

500,000 

Main  Floor  

5,550 

455,000 

Part  2. — What  is  the  overhead  on  the  following  castings 
for  an  engine  ? 


No.  of  Parts 

Name  of  Part 

Weight  ot 
Each  in 
Pounds 

Class  of  Work 

Hours  Required 
to  Mould 
Each  Part 

100 

Bed 

2,000 

Main  Floor 

20 

100 

Frame 

1.500 

Main  Floor 

17 

120 

Wheel 

750 

Main  Floor 

10 

210 

Cylinder 

275 

Side  Floor 

5 

Solution 

Part  1. — Overhead  cost  per  ton  for  cupola  expense  and  per 
hour  of  labor  for  departments. 

Cupola  expense  $50,000  for  5,000,000  Ibs.  or  2,500  tons. 

$50,000  •*-  2,500  =  $20.00  overhead  cost  per  ton. 
Bench  Work  $7,000  -5-  750,000  productive  hours  =  $.00933  per  hour. 
Side  Floor       4,500  ^  500,000         "  u     =     .009        "      « 

Main  Floor     5,550  +  455,000        "  "     =     .01219    «      " 


138          PEOBLEMS  IN  COST  ACCOUNTING 
Part  2.— 


Name 

No.  of 
Parts 

Pounds 
in  Each 

Total  Weight 
in  Tons 

Cupola  Exp. 
per  Ton 

Total  Cupola 
Expense 

Bed  

100 

2,000 

100 

$20.00 

$2,000.00 

Frame  

100 

1,500 

75 

20.00 

1,500.00 

Wheel  

120 

750 

45 

20.00 

900.00 

Cylinder.  .  .  . 

210 

275 

28.875 

20.00 

577.50 

Total  .  .  . 

$4,977.50 

Name 

No.  of 
Parts 

Class  of  Work 

Hours  on 
Each  Part 

Total  Time 
in  Hours 

Depart- 
mental Rate 
per  Hour 

Depart- 
mental 
Expense 

Bed 

100. 

Main  Floor 

20 

2,000 

$.01219 

$24.38 

Frame 

100 

Main  Floor 

17 

1,700 

.01219 

20.72 

Wheel 

120 

Main  Floor 

10 

1,200 

.01219 

14.63 

Cylinder 

210 

Side  Floor 

5 

1,050 

.009 

9.45 

Total  .  .  . 

• 

$69  .  18 

RECAPITULATION 


Name 

Cupola 
Expense 

Departmental 
Expense 

TotaJ 

No.  of 
Parts 

Expense 
per  Part 

Bed  

$2,000.00 

$24.38 

$2,024.38 

100 

$20.24 

Frame  

1,500.00 

20.72 

1,520.72 

100 

15.21 

Wheel  

900.00 

14.63 

914.63 

120 

7.62 

Cylinder  — 

577.50 

9.45 

586.95 

210 

2.80 

$4,977.50 

$69.18 

$5,046.68 

Problem  41 

Part  1. — What  is  the  overhead  cost  per  ton  of  product  for 
cupola  expense  and  per  hour  of  labor  for  each  department  in 
an  iron  foundry  from  the  following  data  ? 


139 


Department 

Annual 
Expense 

Production, 
Lbs. 

Productive 
Hours 

Cupola      

$75,000 

10,000,000 

Bench  Work  

10,000 

1,000,000 

Side  Floor  

5,000 

750,000 

Main  Floor  

6,000 

420,000 

Part  2. — What  is  the  overhead  on  the  following  castings  for 
the  bodies  of  power  punch  presses  ? 


No.  of 
Parts 

Name  of  Part 

Weight  of 
Each  in 
Pounds 

Class  of  Work 

Hours  Required 
to  Mould 
Each  Part 

50 

No.  1  Power  Punch  Press 

3,000 

Main  Floor 

150 

75 

No.  2  Power  Punch  Press 

5,000 

Main  Floor 

210 

100 

No.  3  Power  Punch  Press 

8,000 

Main  Floor 

400 

110 

No.  4  Power  Punch  Press 

12,000 

Main  Floor 

625 

HOURLY  MACHINE  RATES 

In  the  mechanical  industries  where  a  great  deal  of  machin- 
ery is  used,  some  of  which  is  quite  costly,  it  is  necessary  to  de- 
termine the  hourly  cost  of  operating  each  machine  tool  as  a 
basis  for  charging  jobs  for  overhead  expense.  The  plan  is  to 
fix  a  rate  on  each  machine  and  then  to  keep  a  record  of  the 
time  each  machine  is  used  on  various  jobs.  The  expense  is  cal- 
culated on  the  job  by  extending  the  number  of  hours  each  ma- 
chine is  reported  used  on  the  job  at  the  rate  fixed.  The  method 
of  determining  machine  rates  will  readily  be  understood  by 
referring  to  the  following  example:. 

Example. — Make  a  computation  showing  the  cost  per  hour 
for  operating  the  various  machines  listed  in  the  table  on  page 
141. 

Depreciation  is  to  be  figured  at  10  per  cent  of  the  cost  of 
machinery  on  the  straight  line  method. 


140 


PKOBLEMS  IN  COST  ACCOUNTING 


Insurance  and  taxes  are  equal  to  2  per  cent  of  the  cost  of 
machinery. 

The  annual  charge  for  floor  space  is  25  cents  per  square  foot. 

The  rate  for  electric  power  is  5  cents  per  K.W.  hour. 

Administration  expense  is  assessed  against  individual  ma- 
chines on  the  basis  of  $35  annually  for  each  operator  or  pro 
rata  part  thereof. 

The  total  cost  divided  by  the  hours  of  operation  gives  the 
cost  per  hour. 

Solution 


B.  &  S.  No.  1 
Plain 
Milling 
Machine] 

P.  &  W.  16' 
Plain 
Engine 
Lathe 

p.  &  w. 

Hand 

Screw 
Machine 

p.  &  w. 

Automatic 
Screw 
Machine 

Number  of  Machines  

12 

10 

20 

15 

Total  Cost  

$4,800 

$3,000 

$5,500 

$8,500 

Scrap  Value  

$600 

$500 

$1,000 

$2,125 

Sq.  Ft.  of  Floor  Space  

600 

520 

1,000 

900 

K.W.  Hours  per  Month  

700 

570 

1,000 

1,200 

Est.  Tool  Exp.  per  Year  

$150 

$90 

$200 

$450 

Sundry  Expense  

$200 

$150 

$250 

$375 

Number  of  Machines  per  Op- 
erator   

1 

1 

1 

5 

Normal  Hours  per  Year  .  .  ;  .  . 

2,600 

2,600 

2,600 

2,600 

Annual  Depreciation  

$420 

$250 

$450 

$637.50 

Insurance  and  Taxes  

96 

60 

110 

170 

Electric  Power  

420 

342 

600 

720 

Admin.  Expense  

420 

350 

700 

105 

Floor  Space  Charge  

150 

130 

250 

225 

Tool  Expense  

150 

90 

200 

450 

Sundry  Expenses  

200 

150 

250 

375 

Cost  for  One  Machine  

$1,856 
154.66 

$1,372 
137.20 

$2,560 
128.00 

$2,682.50 
178.82 

Number  of  Hours  

2,600 

2,600 

2,600 

2,600 

Cost  per  Hour  for  One  Ma- 
chine   

$.59 

$  52 

$.49 

$.68 

OVERHEAD 


141 


B.&S.  No.l 
Plain 
Milling 
Machine 

P.  &  W.  16" 

Plain 
Engine 
Lathe 

p.  &  w. 

Hand 

Screw 
Machine 

p.  &  w. 

Automatic 
Screw 
Machine 

Number  of  Machines  in  Group  .  .  . 
Total  Cost  of  Machines  in  Group  .  . 
Scrap  Value  

12 
$4,800 
$50  ea, 

10 
$3,000 
$50  ea. 

20 
$5,500 
$50  ea. 

15 

$8,500 
$75  ea. 

Square  Feet  of  Floor  Space  for 
Group  

600 

520 

1,000 

900 

K.W.  Hours  per  Month  for  Group 
Estimated  Tools  Expense  per  Year 
per  Group  

700 
$150 

570 

$90 

1,000 
$200 

1,200 
$450 

Sundry    Expense,    including    Re- 
pairs, per  Year  for  Group  

$200 

$150 

$250 

$375 

Number  of  Machines  per  Operator  . 
Normal    Number   of    Hours    Op- 
erated per  Year  

1 
2,600 

1 
2,600 

1 

2,600 

5 

2,600 

Problem  42 

Make  a  calculation  of  the  cost  per  hour  for  operating  power 
punch  presses  from  the  following  data. 

Depreciation  is  to  be  figured  at  121/2  per  cent  of  the  original 
cost  of  the  machinery. 

Insurance  and  taxes  are  equal  to  3  per  cent  of  the  cost  of 
machinery. 

The  annual  charge  for  floor  space  is  33l/£  cents  per  square 
foot. 

The  rate  for  electric  power  is  4  cents  per  K.W.  hour. 

Administration  expense  is  assessed  against  each  machine  on 
the  basis  of  $40  annually  for  each  operator. 

The  total  charges  against  each  machine  divided  by  the  num- 
ber of  hours  normally  operated  gives  the  hourly  machine  rate 

The  normal  hours  of  operation  are  obtained  from  records 
kept  of  machine  time  during  a  period  when  the  factory  was 
running  full  or  nearly  full  time. 


142 


PROBLEMS  IN  COST  ACCOUNTING 


Items 

Power  Punch  Presses 

Weight 
3,000  Lbs 

Weight 
5,000  Lbs. 

Weight 
8,000  Lbs. 

Weight 
12,000  Lbs. 

Number  of  Machines  in  Group  .  .  . 

20 

10 

5 

2 

Total  Cost  of  Machines  in  Group  .  . 

$11,500 

$9,000 

$6,400 

$3,360 

Scrap  Value  of  Machines  in  Group  . 

$1,150 

$900 

$640 

$336 

Square  Feet  of  Floor  Space  for 
Group  

1,500 
5,000 

850 
3,000 

475 
2,000 

220 
1,000 

K.W.  Hours  per  Month  for  Group  . 

Estimated  Tools  Expense  per  Year 
for  Group  

$125 

$115 
1 

$110 

$100 
1 

$75 

$90 
1 

$50 

$75" 
1 

Sundry  Expense  including  Repair:, 
per  Year  for  Group  

Number  of  Machines  per  Operator  . 

Normal    Number   of    Hours    Op- 
erated per  Year  

2,500 

2,200 

2,000 

1,500 

AUTOMATIC  MACHINE  EXPENSE 

Attention  should  be  called  to  the  method  of  handling  the 
cost  of  operating  antomatic  machines  before  leaving  the  subject 
of  indirect  expense.  In  those  factories  where  work  is  produced 
on  automatic  machines  it  is  impossible  to  keep  the  time  of  the 
operators  on  the  various  jobs  done  on  each  machine  because  one 
operator  tends  a  group  of  machines  and  is  constantly  moving 
from  one  machine  to  another.  The  only  method  applicable  to 
the  solution  of  the  problem  presented  by  automatic  machines  is 
to  include  the  operator's  wages  with  that  of  the  machines  and  to 
apply  both  the  overhead  expense  and  operator's  labor  together 
as  a  rate  per  machine  hour  on  the  automatic  machine  product. 
Thus,  if  one  operator  whose  wages  are  twenty-five  dollars  a 
week  tends  a  line  of  six  Brown  &  Sharp  Manufacturing  Com- 
pany's automatic  screw  machines,  the  expense  of  operating 
which  is  $2,500  a  year,  the  cost  per  hour,  including  labor  and 


OVERHEAD  143 

expense,  on  the  basis  of  2,000  operating  hours  per  year  is 
$633.33  per  year  per  machine,  or  31|  cents  per  hour. 


Problem  43 

From  the  following  data  make  a  calculation  of  the  hourly 

cost  of  operating  automatic  gear  cutting  machines  in  a  plant 
normally  operated  2,100  hours  per  year. 

Number  of  machines  tended  by  one  operator 3 

Weekly  wages  of  operator $30 

Annual  cost  of  operating  each  gear  cutting  machine .  $600 


COST  OF  UNUSED  CAPACITY 

It  is  an  axiom  of  factory  management  that  the  maximum 
efficiency  can  only  be  obtained  when  the  machinery  is  kept  busy 
all  of  the  time.  There  is  a  direct  loss  sustained  whenever  a 
machine  is  idle,  because  such  charges  as  depreciation,  insurance 
taxes,  interest,  rent  and  repairs  do  not  ordinarily  diminish  dur- 
ing periods  of  slack  production.  The  problem  frequently  arises 
as  to  what  is  the  loss  due  to  idle  machinery  or  the  cost  of  unused 
capacity  as  it  is  sometimes  called.  In  order  to  ascertain  the 
loss  due  to  idle  machinery  during  periods  of  slack  production 
it  is  necessary  to  keep  a  record  of  the  hours  each  machine  is  idle 
and  extend  the  total  by  the  hourly  machine  rate,  which  includes 
such  elements  of  indirect  expense  as  are  directly  chargeable  to 
the  machine.  Factory  superintendents  know  that  there  is  a 
point  below  which  they  cannot  reduce  their  operating  expenses. 
Even  when  a  plant  is  idle,  for  a  period  certain  expenses  continue 
to  run  on.  Reference  to  the  following  example  will  illustrate 
the  method  of  calculation. 

Example. — What  is  the  loss  due  to  idle  machinery  for  the 
month  of  January,  1917,  from  the  following  report  ? 


144 


PROBLEMS  IN  COST  ACCOUNTING 


Date 

Hours  Idle 

Machine 
No.  1 

Machine 
No.  2 

Machine 
No.  3 

Machine 
No.  4 

Machine 
No.  5 

Machine 
No.  6 

Machine 

No.  7 

Total 

Jan.    1  

4 

1 

2 
1 
2 
2 
1 
5 
1 

X 

5 
2 
1 

1A 

i 

2 
H 

^ 

7 
5 
6 
7 
5 
6 
7 
2 

7 

H 
H 

6 

M 

3 

6 
1 
1 
1 

H 
H 

.    21 

9M 
9M 
20 

7H 
12 
19 
9 
6 
16 
11 

*       3  

«       4  

5 
3 

«       5  

«       6  

«       7  

3 
1 

1 

2 
3 

K 

«       8  

*      10..... 

«      11  

«      12  

2 

3 

2 

4 

5 

1 

a      13..... 

1 

«      14  

«      15  

YL 

y2 

9 
5 
11M 

8M 
6 

2H 
10M 
8 
10 
7^ 
20 
4 
IK 

«      17  

K 

H 

2 

2 

M 

H 

7 
2 
5 

K 

2 
1 
5 
5 

H 
H 

6 

M 
6 
1 

H 

1 

1 
1 
1 

X 

1 

1 

2 
1 

5 
1 
2 

2 

« 

5 
1 

X 
H 

2 

«      18  

2 

H 

i 

1 
1 

2 

H 

K 
1 

H 

4 
H 

«      19  

y2 

«      20  

«      21  

«      22  

«      24  

i 

2 

«      25  

«      26  

2 
2 
3 

«      27  

«      28  
«      29  

1A 

B      31  ..... 

H 

Totals.... 

isy2 

30 

23 

68^ 

48M 

30M 

27 

246 

The  hourly  rate  for  all  factory  expense  directly  chargeable 
to  each  of  the  seven  machines  above  mentioned  is  as  follows : 


No.  1. 
No.  2. 
No.  3. 
No.  4. 


$.50 
.75 

.80 

.85 


No.  5 $.90 

No.  6 95 

No.  7 . .  1 . 10 


OYEKHEAD 


145 


Solution 


Machine 

Amount  of  Loss  Due  to  Idle  Machinery 

Number 
Hours  Idle 

Rate  per  Hour 

Amount 

Number  1  

18H 

30 
23 

&sy2 

48% 
30^ 
27 

$.50 
.75 
.80 
.85 
.90 
.95 
1.10 

$9.25 
22.50 
18.40 
58.22 
43.87 
28.74 
29.70 

«        2  

«        3  

"        4  

«        5  

«        6  

«        7  

Total  

246 

$.856 

$210.68 

Problem  44 

From  the  data  given  in  Exhibit  32,  make  a  calculation  of 
the  loss  due  to  idle  machinery  in  the  sensitive  drill  press  de- 
partment of  a  factory.  The  hourly  rate  for  a  one-spindle  sensi- 
tive drill  press  is  $.20  and  for  each  additional  spindle  the  rate 
increases  one  cent  an  hour.  Thus  a  two-spindle  drill  press 
would  have  a  rate  of  $.21  and  so  on. 

Ans.  $60.18 


BURDEN  DISTRIBUTION 

The  subject  of  burden  distribution  occupies  an  important 
place  in  the  literature  on  cost  accounting.  Various  methods 
have  been  used  under  different  conditions  for  arriving  at  the 
proper  amount  to  charge  to  the  cost  of  production.  In  order  to 
illustrate  the  method  commonly  used  in  a  printing  plant  refer- 
ence is  made  to  the  following  example. 

Example. — Find  the  cost  per  productive  hour  and  the  cost 
of  handling  stock. 


IDLE    MACHINERY    REPORT 

FOR     10       DAYS      ENDING   January    20  1917 

MACHINE 

No 

HOURS 
IDLE 

HOURLY 
RATE. 

AMOUNT 

SENSITIVE.  DRILL  PRE65 

/      5PINDLE 

101 

£ 

2 

IOZ 

IZ 

4 

l_03 

1 

4 

104 

6 

6 

105 

15 

6     : 

106 

8 

8 

107 

II 

8       - 

108 

7 

/2       •• 

109 

40 

/2     : 

I/O 

IZ 

/2       - 

III 

11 

16       - 

//^ 

2, 

/6 

1/3 

4- 

/6 

1/4 

21 

££       " 

1/5 

15 

2<9       " 

116 

22 

TOTAL 

EXHIBIT  32. — Idle  Machinery  Report. 
146 


OVERHEAD 


147 


Part  1. — The  following  purchases  are  to  be  distributed  on 
an  accounts  payable  distribution  register  which  contains  col- 
umns for  analyzing  invoices  according  to  departments.  The  de- 
partments are  composition,  job  press,  cylinder  press,  bindery, 
stock  and  general.  Items  are  charged  to  general  expense  when 
they  cannot  be  classified  under  one  of  the  regular  departments. 
The  method  of  disposing  of  the  total  general  expense  is  to  assess 
it  against  the  departments  in  a  factory  on  the  basis  of  the  total 
direct  charges  in  each  department. 

Eent,  $1,000.  The  rent  bill  of  $1,000  for  January,  1916, 
is  to  be  distributed  against  departments  on  the  basis  of  the 
floor  space  occupied  by  each.  First  find  the  area  in  square  feet 
occupied  by  each  department  and  then  multiply  by  the  monthly 
rental  cost  per  square  foot  of  floor  space,  using  the  following 
data. 


Departments 

Sq.    Feet    of    Floor 
Space  Occupied 

Composition  

16,000 

Job  Press  

17,000 

Cylinder  Press  

58,000 

Bindery  

20,000 

Stock  

10,000 

General  (Office)  

13,000 

Light,  $155.  The  light  bill  of  $155  for  January,  1916,  is 
to  be  distributed  against  departments  on  the  basis  of  the  num- 
ber of  gas  burners  or  candle-power  of  lamps  installed  in  each  de- 
partment. The  number  of  lamps,  which  were  of  uniform  size 
in  the  printery,  were  as  follows : 


Departments 

No.  of  150  Watt  Ni- 
trogen Tungsten  Lamps 

Composition  

32 

Job  Press  

34 

Cylinder  Press  

116 

Bindery  '  

40 

Stock  

20 

General  (Office)  

26 

148 


PROBLEMS  IN  COST  ACCOUNTING 


Power,  $750.  The  power  bill  of  $750  for  January,  1916,  is 
to  be  distributed  against  departments  on  the  basis  of  the  horse- 
power used,  which  is  found  by  test  to  be  in  the  following  pro- 
portion. 


Departments 


Composition  (Machine) 

Job  Press 

Cylinder  Press 

Bindery 


Per  Cent  of 
Horse  Power  Used 


100 


Insurance  and  taxes,  $250.  The  invoices  for  insurance  and 
taxes  for  January,  1916,  are  to  be  distributed  against  depart- 
ments on  the  basis  of  the  inventory  value  of  equipment  and 
stock  in  each  department,  as  follows : 


Departments 

Inventory  of  Equip- 
ment and  Stock 

Composition  

$35,824 

Job  Press  

5,116 

Cylinder  Press  

22,329 

Bindery     

6,750 

Stock  

10,000 

General  (Office)  

1,575 

Department  direct  expenses  $263.  During  January  pur- 
chases amounting  to  $263  were  made  and  charged  to  depart- 
ments as  follows : 


Departments' 


Department 
Direct  Expenses 


Composition  

$10 

Job  Press  

15 

Cylinder  Press  

35 

Bindery  

20 

Stock  

30 

General  (Office)  

153 

$263 

OVEEHEAD  149 

Office  stationery  and  postage,  $50,  and  cartage  and  carfare, 
$72,  for  January,  1916,  charged  on  the  accounts  payable  dis- 
tribution register  to  general  expense. 

Part  2. — A  statement  of  the  cost  per  productive  hour  and  the 
cost  of  handling  stock  is  to  be  made  from  the  information  con- 
tained on  the  accounts  payable  distribution  register,  depart- 
ment pay  rolls,  and  estimated  allowances  for  interest,  depre- 
ciation and  bad  debts.  Spoiled  work  is  also  charged  to  the 
cost  of  production. 

Rule  up  a  columnar  form  for  the  statement  of  the  cost  per 
productive  hour  and  the  cost  of  handling  stock  and  provide  a 
column  for  each  department.  The  first  charges  are  to  be  ob- 
tained from  the  accounts  payable  register. 

The  department  pay  rolls  for  January  showed  the  follow- 
ing: 


Departments 

Pay  Roll  for 
January,  1916 

Composition   

$1,660 

Job  Press     

800 

Cylinder  Press  

650 

Bindery  

1,100 

Stock  

200 

General   (Office)  .  . 

1.600 

Interest  on  the  department  investment  is  to  be  figured  in 
accordance  with  the  provisions  of  the  standard  cost  system  for 
printers  which  provides  that  6  per  cent  shall  be  charged  to  the 
cost  of  production  to  cover  interest  on  the  department  invest- 
ment. For  the  inventory  of  equipment  or  stock  see  under 
"Insurance  and  Taxes"  and  use  those  figures  as  the  basis  for 
computing  the  interest  charge. 

Depreciation  is  to  be  figured  at  the  rate  of  10  per  cent  on 
equipment  and  25  per  cent  on  type  per  annum  of  original 
cost.  The  following  data  can  be  used  for  computing  depre- 
ciation: 


150 


PROBLEMS 


COST  ACCOUNTING 


Departments 

Inventory  of  Equipment, 
Subject  to  Depreciation 

Composition  

10%            25% 
$5,800       $30,024 

Job  Press  

5,116 

Cylinder  Press  

22,329 

Bindery  

6,750 

Stock  

1,000 

General  (Office)  

1,575 

Bad  debts  are  chargeable  to  general  expense  and  are  esti- 
mated at  one  per  cent  of  the  sales  which  amount  to  $120,000 
annually. 

Spoiled  work  for  January,  1916,  amounted  to  $35,  and  is  a 
general  expense  charge. 

Foot  each  column  on  the  statement  and  prorate  the  footing 
of  the  general  expense  column  according  to  the  amounts  charged 
in  the  other  columns. 

Part  3. — Find  the  cost  per  productive  hour  and  the  cost  of 
handling  stock,  per  dollar  of  stock  handled,  using  the  following 
data.  The  monthly  record  of  productive  and  nonproductive 
hours  for  the  composition  and  bindery  departments,  and  the 
monthly  record  of  productive  and  nonproductive  hours  and 
press  impressions  for  the  different  presses  give  the  productive 
hours  as  follows: 


Departments 

Productive 
Hours 

Composition  

2,800 

Bindery     

3,280 

Job  Press  

1,810 

Cylinder  Press   

1,050 

The  amount  of  stock  issued  by  the  stock  clerk  in  January, 
1916,  was  $3,510. 

Solution 

The  solution  to  the  foregoing  example  is  presented  in  the 
following  exhibit. 


OVERHEAD 
ACCOUNT  PAYABLE  DISTRIBUTION  REGISTER 


151 


Total 

Comp. 

Job.  P. 

Cyl.  P. 

Bindery 

Stock 

General 

Rent  

$1,000 

$119.42 

$126.88 

$432.74 

$149.26 

$74.66 

$97.04 

Light  

155 

18.51 

19.67 

67.08 

23.13 

11.57 

15.04 

Power 

750 

37  50 

150  00 

450  00 

112  50 

Ins.  and  tax  

250 
263 

109.76 
10  00 

15.67 
15  00 

68.42 
35  00 

20.68 
20  00 

30.64 
30.00 

4.83 
153  00 

Stationery       and 

50 

50  00 

Cartage  and  car- 
fare   

72 

72  00 

Total  

$2,540 

$295.19 

$327.22 

$1,053.24 

$325.57 

$146.87 

$391.91 

STATEMENT  OF  THE  COST  PER  PRODUCTIVE  HOUR  AND  THE 
COST  OF  HANDLING  STOCK 


Total 

Comp. 

Job.  P. 

Cyl.  P. 

Bindery 

Stock 

General 

Accounts  payable 
January  payroll.  . 
Six    per    cent    on 
Investment  
Depreciation  .... 
Bad  debts  

$2,540.00 
6,010.00 

407.97 
980.25 
100.00 

$295  .  19 
1,660.00 

179.12 
673.83 

$327.22 
800.00 

25.58 
42.63 

$1,053.24 
650.00 

111.65 
186.08 

$325.57 
1,100.00 

33.75 
56.25 

$146.87 
200.00 

50.00 
8.33 

$391.91 
1,600.00 

7.87 
13.13 
100.00 

Spoiled  work  .... 

35.00 

35  00 

Total  

$10073.22 

$2^08  14 

$1,195.43 

$2,000.97 

$1,515  57 

$405  20 

$2,147  91 

761  06 

323  98 

542  30 

410  75 

109  82 

Total  

$10,073.22 

$3,569  20 

$1,519  41 

$2,543  27 

$1,926  32 

$515  02 

2,800 

1,810 

1,050 

3,280 

Cost  per  prod.  hr. 

$.1274 

$.839 

$2.422 

$.587 

$3,510 

Cost    per    $1    of 

$.146 

Problem  45 

From  the  data  contained  in  the  following  schedules  pre- 
pare a  statement  showing  the  distribution  of  the  fixed  charges, 
building  expense  and  power  to  the  various  departments  and 
processes  in  a  textile  mill. 

SCHEDULE  1. — Items  to  be  distributed  on  the  basis  of  the  cost 

of  machinery 
Fixed  Charges 

Depreciation $20,000 

Insurance 700 

Taxes 4,300 


Total $25,000 


152  PROBLEMS  IN  COST  ACCOUNTING 

SCHEDULE  2. — Items  to  be  distributed  on  the  basis  of  floor  space 
Building  Expense 

Repair  Material $120 

Repair  labor 160 

Taxes 1,500 

Insurance 100 

Fire  protection 20 

Watchman 100 

Depreciation 1,690 


Total $3,690 

SCHEDULE  3. — Items  to  be  distributed  on  the  basis  of  horsepower 
Steam  Plant 

Fuel $7,000 

Labor 640 

Repairs 500 

Maintenance 700 

Power  Plant 

Labor $600 

Repairs 500 

Maintenance . .  560 


Total $10,500 

In  addition  to  the  foregoing  items  the  steam  and  power  plant 
operating  costs  must  include  the  pro  rata  charge  for  the  fixed 
charges  and  also  for  the  floor  space  used.  Schedule  4  appears 
on  the  opposite  page. 


In  any  factory  a  cumulative  and  comparative  analysis  of 
expense  should  be  furnished  the  executives  at  the  close  of  each 
month.  The  report  should  show  not  only  the  amount  of  ex- 
pense for  the  current  month  classified  under  appropriate  head- 
ings, but  also  the  amount  accumulated  to  date.  A  desirable  fea- 
ture of  an  expense  report  is  a  comparison  of  the  average  amount 
of  monthly  expense  for  each  classification  with  the  average  for 


153 


SCHEDULE  4. — Table  showing  the  cost  of  machinery,  floor  space 
and  horsepower  used  in  each  operation  in  a  typical  textile  mill. 


Operation 

Description 

Machinery  Cost 

Sq.  Ft. 
Floor 
Surface 

Horse 
Power 

Price 

Unit 

$1,000.00 
800.00 
800.00 
750.00 
675.00 
80.00 

j      13.50 

9.50 
6.75 
3.50 
3.25 
200.00 
325.00 
4.25 
1,100.00 
350.00 
1,200.00 
100.00 
650.00 
250.00 
250.00 
250.00 
1,100.00 
150.00 
1,200.00 
125.00 
15.00 
65.00 
120.00 
250.00 
750.00 
25.00 
3,000.00 
25.00 
1,000.00 
250.00 
80.00 

1,000.00 
800.00 
1,200.00 
300.00 
400.00 
100.00 

12,550.00 
650.00 
450.00 
200.00 
1,050.00 
783.00 

Ea.  ) 

1    I 

„    J 

:) 

Sp. 

Ea. 

Sp. 

Ea.| 

, 

} 
} 

) 

) 

4,000 

800 
8,200 

1,500 

2,500 
7,500 
31,000 
2,600 
2,000 
3,500 
2,000 

1,500 

2,000 

1,500 
3,000 

16,000 
4,000 
200 
200 

1,600 

300 
200 
100 

3,000 
500 

4,000 

3,000 
200 

1,000 
100 
10,000 

5,000 

54 

3 

67 

7 

13 
34 
314 
5 
3 
3 
30 

5 

5 

1 

6 

82 
19 
1 
3 

5 

4 

^ 

28 

3 
2 

Waste  Pick  

1  Waste  picker  and  feeder.  . 
44  Cards           

Carding  and 

6  Slubbers  

Intermediates  .... 
Fly  Frames  

312  Spindles  
8  Intermediates,  912  spindles 
24  Fly  frames,  4032  spindles 
90  Frames,  21,  600  spindles.  . 
10  Spoolers,  1,200  spindles.  . 
15  Reels                   

10  Warpers         

10  Frames   1  600  sp  

Dyeing  Stock  .... 
Dyeing  Chain  

1  R.  S.  Dyeing  Machine  

1  Boiling  box  
1  Doubler      

2  Scotch  tubs  

1  Splitter  

1  Dry  splitter  

2  Slashers          

330  Plain  looms 

Sewing  

75  Drop  box  looms  

1  Sewing  rolling  machine  .  .  . 
1  Shear  and  brushing  mach.  . 

Calendering  

1  Calender  
1  Folder  

1  Winding  machine  

Pressing   and 

Cloth  racks 
1  Power  press  for  cloth  .  .  . 

Steam  Plant  

Power  Plant  and 
Shafting  

Light  Plant  

Repair  Plant  
Humidifying  

7  150-H.  P.  boilers  

2  Boiler  feed  pumps  

1  Condenser  

2  50-K.W.  dynamos  

Lathes,  etc.,  total  
1  Pump  

Goods   and    Yarn 

a  preceding  period.  The  proper  arrangement  for  such  a  report 
will  be  understood  by  reference  to  Exhibit  33,  which  shows  the 
left-hand  side  of  a  semi-annual  statement  of  expense. 


UJ 


UJ 

Cu. 


&5 


y^> 

:<T> 


OH- 


X 


-3P 


ss 


i-z: 

§S^ 
°z:  = 


i 

z: 

o 

H 

OH 


O 
CO 

U4 


UJ 


0 


h 

o 


a.d 
coco 


x 

h 


154 


OVERHEAD 


155 


Problem  46 

Design  a  form  for  a  cumulative  and  comparative  analysis 
of  expense,  which  will  show  (1)  Last  year's  total,  (2)  Aver- 
age month  last  year,  (3)  Month  ending  Jan.  31,  1917,  (4) 
Month  ending  Feb.  28,  1917,  (5)  Total  of  year  to  Feb.  28, 
1917,  (6)  Month  ending  March  31,  1917,  (7)  Total  of  year  to 
March  31,  1917,  current  month  and  accumulated  total  to  the 
end  of  each  month  for  the  months  May  and  June.  Also  the 
average  for  the  six  months  in  1917  from  January  to  June,  in- 
clusive. 


Expense  Items 

Last  Year 
Total 

Jan. 
1917 

Feb.* 
1917 

Mar. 
1917 

April 
1917 

May 
1917 

June 
1917 

Executives  

$16,200.00 

$1,435.00 

$1,435.00 

$1,435.00 

$1,435.00 

$1,435.00 

$1,435.00 

Postage  

840.00 

75.00 

69.00 

76.50 

81.25 

72.00 

80.00 

Printing  and  Sta- 
tionery   

660.00 

67.50 

50.20 

36.90 

72.00 

29.40 

40.00 

Clerks  &  Typists  . 
Telephone   and 
Telegraph  

6,000.00 

102.00 
60  00 

527.00 

7.93 

10.00 

480.00 

6.80 
5.00 

520.00 

7.10 
2.00 

514.50 

8.30 
15.00 

540.00 

9.00 
6.00 

550.00 

8.50 
4.00 

Advertising  (Gen- 
eral)     

1,800.00 

173.90 

140.50 

148.80 

190.40 

200.00 

165.00 

Association  Dues 
Fixed  Chirges 

300.00 
105.60 

25.00 
9.16 

25.00 
9.16 

25.00 
9.16 

25.00 
9.16 

25.00 
9.16 

25.00 
9,  16 

Taxes            

47.40 

4.17 

4.17 

4.17 

4.17 

4.17 

4.17 

Depreciation  .... 
Rent   .          

116.04 
23.28 

10.08 
1.94 

10.08 
1.94 

10.08 
1.94 

10.08 
1.94 

10.08 
1.94 

10.08 
1.94 

Power,  Heat  and 
Light  

72.36 

5.61 

5.20 

5.00 

5.10 

4.80 

4.60 

Total  

$26,326.68 

$2,352.29 

$2,242.05 

$2,281.65 

$2,371.90 

$2,346.55 

$2,337.45 

CHAPTER  IX 
DEPRECIATION 

Depreciation  is  common  to  all  manufacturing  enterprises. 
The  buildings  deteriorate,  or  in  time  become  hopelessly  out  of 
date  for  the  purpose  for  which  they  were  designed.  Machinery 
is  subject  to  depreciation,  and  although  its  life  may  be  extended 
by  heavy  repairs,  sooner  or  later  it  reaches  the  junk  heap.  In 
view  of  the  fact  that  every  manufacturing  plant  is  continually 
depreciating  and  becoming  obsolete  in  whole  or  in  part,  it  is 
generally  recognized  that  the  entire  cost  of  any  operation  has 
not  been  reckoned  until  proper  allowance  has  been  made  for 
depreciation.  The  process  of  manufacturing  uses  up  not  only 
materials  and  labor  but  also  machinery  and  plant,  and  the  total 
cost  should  therefore  include  an  adequate  allowance  for  depre- 
ciation. It  is  a  serious  mistake  for  a  business  man  to  regard 
depreciation  as  something  optional  that  can  be  provided  for  if 
he  has  a  sufficient  margin  of  profit,  or  ignored  if  the  results  of 
the  operations  for  the  period  have  been  unsatisfactory.  Unless 
an  adequate  charge  is  regularly  made,  the  result  is  an  uneven 
and  illogical  statement  of  profit  and,  in  the  event  that  depre- 
ciation is  omitted,  an  overstatement  of  both  assets  and  profits. 
There  are  two  matters  to  be  kept  in  mind  in  connection  with 
depreciation;  one  is  the  rate,  which  depends  upon  the  probable 
life  of  the  asset,  and  the  other  is  the  method  of  'bookkeeping. 
The  three  principal  methods  used  for  calculating  depreciation 

are  usually  described  as: 

156 


OVERHEAD  157 

Straight  line  method 

Fixed  percentage  on  diminishing  value  method 

Sinking  fund  method 

Depreciation  is  frequently  spoken  of  as  Expired  capital  out- 
lay, because  it  represents  the  decline  in  value  of  the  assets  in  a 
going  concern  during  the  period  which  elapses  between  the  time 
an  article  is  purchased  and  the  time  it  is  scrapped. 


DEPRECIATION— STRAIGHT  LINE  METHOD 

The  most  common  method  of  writing  off  depreciation  is  as 
follows:  the  owner  first  determines  upon  the  probable  life  of 
the  machine,  and  also  the  value  of  the  machine  at  the  end  of  its 
usefulness,  as  mere  scrap.  Each  year  he  makes  a  charge  to  the 
factory  expense  account  equal  to  one-tenth  of  the  original  cost 
of  the  machine  less  its  scrap  value  if  he  has  determined  that  the 
life  of  the  machine  is  ten  years.  If  the  life  of  the  machine  were 
twelve  years  he  would  charge  one-twelfth.  Furthermore,  he 
credits  the  depreciation  reserve  account  with  a  corresponding 
amount.  Thus,  if  an  article  cost  $1,000  and  is  estimated  to 
last  10  years,  with  a  scrap  value  of  $100,  the  amount  to  be 
written  off  each  year  would  be  $90.  This  is  sometimes  called 
the  straight  line  method,  because  if  the  years  are  plotted  on  a 
horizontal  line  and  the  remainder  values  on  vertical  lines  on 
cross-section  paper,  the  value  depreciation  will  be  represented 
by  a  straight  oblique  line  with  a  vertical  drop  at  the  end. 

The  plan  of  handling  depreciation  is  also  referred  to  as  the 
fixed  proportion  system.  The  following  example  illustrates 
how  the  problem  is  handled  in  practice. 

Example. — On  Jan.  2,  1900,  the  Federal  Publishing  Co. 
purchased  10  cylinder  presses  from  Amos  Marshall  &  Co.  at 
$3,600  each,  which  were  estimated  to  last  10  years  and  have  a 


158 


PROBLEMS  IN  COST  ACCOUNTING 


scrap  value  of  $100  each.     Set  up  a  pro  forma  ledger  account 
for  the  10  cylinder  presses  at  the  cost  value. 

Determine  the  annual  amount  of  depreciation  on  the  10 
cylinder  presses  according  to  the  straight  line  method  or  as  it 
is  sometimes  called  the  fixed  proportion  system. 


/  23456/69/0 
YEARS 


EXHIBIT  34. — Chart  Showing  the  Depreciated  Value  at  the  End  of  Each 
Year  of  a  $1,000  Machine  with  a  Scrap  Value  of  $100,  Having 
an  Estimated  Life  of  10  Years,  According  to  the  Straight  Line 
Method.  « 

Set  up  the  pro  forma  ledger  accounts  for  (1)  Factory  Over- 
head, Cylinder  Press  Department,  and  (2)  Reserve  for  depre- 
ciation. 

Make  annual  entries  on  the  pro  forma  ledger  accounts  and 
show  how  the  accounts  would  appear  at  the  end  of  the  tenth 
year. 


159 


At  the  end  of  the  tenth  year  the  Federal  Publishing  Co.  de- 
cided to  scrap  the  10  cylinder  presses.  Make  the  proper  entry 
to  the  pro  forma  ledger  account  for  the  10  cylinder  presses  and 
to  the  reserve  for  depreciation  account. 

Solution 


DR. 


Name 


Cylinder  Presses 


CB. 


Jan.  2,  1900 
Amos  Marshall  &  Co. 


$36,000 


$36.000 


Dec.  31,  1909 

Depreciation $35,000 

Scrap  Value 1.000 

$36,000 


DR.      Name      Factory  Overhead,  Cylinder  Press  Dept. 


CR. 


Dec.  31,  1900  Depreciation  $3,500 

1 

" 

3,500 

2 

• 

3,500 

3 

a 

3,500 

4 

a 

3,500 

5 

a 

3,500 

6 

• 

3,500 

7 

u 

3,500 

8 

u 

3,500 

9 

u 

3,500 

$35,000 

DR.       Name 


Reserve  for  Depreciation 


CR. 


Dec.  31,  1909 

Dec.31,1900Fac.O.Cyl 

P.D 

.$3,500 

Cyl.  Presses  Scrapped  as 

1 

u     u 

u 

u 

3,500 

Obsolete  $35,000 

2 

u     u 

u 

a 

3,500 

3 

u    u 

u 

u 

3,500 

4 

u     u 

u 

u 

3,500 

* 

5 

u    u 

u 

u 

3,500 

6 

u     u 

u 

u 

3,500 

7 

u     u 

u 

u 

3,500 

8 

u     u 

u 

u 

3,500 

9 

u     u 

u 

I 

3,500 

$35,000 

$35,000 

160          PKOBLEMS  IN  COST  ACCOUNTING 


DR.      Name  Old  Machinery  CR. 


Dec.  31,  1909 
Scrap    Value    of    Old 

Press $1,000 


Problem  47 

On  Jan.  3,  1907,  The  International  Specialty  Co.  purchased 
20  Bliss  Punch  Presses,  at  $1,250,  each  estimated  to  last  10 
years  and  have  a  scrap  value  of  $100  each. 

Set  up  a  pro  forma  ledger  account  for  the  10  cylinder  presses 
at  the  cost  price. 

Determine  the  annual  amount  of  depreciation  on  the  20 
.  machines  according  to  the  straight  line  method. 

Set  up  the  pro  forma  ledger  accounts  for  (1)  Factory 
Overhead,  Punch  Press  Department,  and  (2)  Reserve  for  De- 
preciation. 

Make  annual  entries  on  the  pro  forma  ledger  accounts  and 
show  how  the  accounts  would  appear  at  the  end  of  the  tenth 
year. 

At  the  end  of  the  tenth  year  the  presses  were  scrapped. 
Make  the  proper  entries. 

FUND  FOR  DEPRECIATION 

It  sometimes  happens  that  the  management  of  a  business 
enterprise  wants  to  set  aside  a  cash  fund  for  depreciation  so 
as  to  have  on  hand  at  all  times  the  necessary  money  to  re- 
place parts  of  the  plant  as  they  wear  out.  The  method  of 
handling  the  accounts  will  be  understood  from  the  following 
example. 

Example. — On  Jan.  2,  1900,  the  Akron  Electric  Co.  pur- 
chased 20  Brown  &  Sharpe  No.  1  Milling  Machines  at  $600 


OVERHEAD  1G1 

each,  including  attachments,  estimated  to  last  10  years  and  to 
have  a  scrap  value  of  $50  each.  This  machinery  was  charged  to 
the  equipment  account.  The  management  decided  to  establish 
not  only  a  reserve  for  depreciation,  but  also  actually  to  set  aside 
(by  investment)  an  amount  of  money  equivalent  to  the  credits 
in  the  depreciation  reserve  account,  and  to  credit  the  return 
from  such  investments  to  revenue.  By  this  means  a  cash  fund 
is  at  all  times  on  hand  to  offset  the  depreciation  reserve  account, 
and  at  the  end  of  the  period  the  money  is  available  to  replace 
the  asset.  In  addition  to  the  accounts  set  up  in  the  example 
above,  entitled  (1)  Factory  Overhead,  (Department  A)  and 
(2)  Reserve  for  Depreciation,  set  up  the  additional  accounts 
required  to  handle  the  funds  for  investment,  (3)  Fund  for  De- 
preciation and  (4)  Cash. 

Show  how  accounts  3  and  4  would  appear  on  the  ledger  af- 
ter using  for  10  years  the  straight  line  method  previously  ex- 
plained for  computing  the  annual  amounts  to  be  credited  to  re- 
serve for  depreciation  and  cash. 

At  the  end  of  the  tenth  year  the  20  B.  &  S.  milling  machines 
were  scrapped.  Make  the  proper  entries. 

Note:  Under  this  plan  all  revenue  from  the  depreciation 
fund  investments  is  credited  to  the  general  revenue  account  of 
the  business,  on  the  ground  that  depreciation  is  going  on 
whether  investments  are  paying  or  not,  and  an  investment  gain 
should  not  be  confused  with  depreciation,  but  should  be  credited 
to  general  revenue. 


DE.      Name 

Equipment 

CK. 

Jan.  2,  1900 
B.  &  S.  Milling  Machines  . 

$12,000 

Dec.  31,  1909 
Depreciation  

$11,000 

Scrap  Value  

1,000 

$12,000 

$12,000 

162 


PROBLEMS  IN  COST  ACCOUNTING 


DR.      Name         Factory  Overhead,  Milling  Machines 


CR. 


Dec.  31,1900 

Depreciation  $1,100 

1 

"               1,100 

2 

«               1,100 

3 

"               1,100 

4 

B               1,100 

5 

"               1,100 

6 

«               1,100 

7 

«               1,100 

8 

u               1,100 

9 

«               1,100 

$11,000 

DR.      Name 

Reserve  for  Depreciation 

CR. 

Dec.  31,  1909 

Equipment.  $11,000 

Jan.  2,  1900  Fac.  0  .  .  .  . 

$1,100. 

1  M.M.      .  . 

1  100 

2      "     

1,100 

o        u 

....    1,100 

4      "     

1,100 

5      «     

1,100 

6//                  X 

1,100 



7     «     

4,100 

8     «     

1,100 

9      «     

1,100 

$11,000 

DR.      Name 


Fund  for  Depreciation 


CR. 


Dec.  31,  1900  Cash  .  . 

$1,100 

» 

1     «    .. 

1,100 

2.  _*'.'. 

..:...  1,100 

3     «    .. 

1,100 

4     "    .. 

1,100 

5     "    .. 

1,100 

6     u    .. 

1,100 

fy           (( 

1,100 

8     "     .. 

1,100 

9     "    .. 

1,100 

OVERHEAD 

163 

DR.      Name                                  Cash 

CR. 

Dec.  31,  1900  Fund  for  De- 

preciation. . 

$1,100 

1 

1,100 

2 

1,100 

3 

1,100 

4             " 

1,100 

-5 

1,100 

.     6 

1,100 

7 

1,100 

8 

1,100 

9 

1,100 

DR.      Name                          Old  Machinery 

CR. 

Dec.  31,  1909 
Scrap  Value  of  Old   Ma- 
chines  $1,000 


Problem  48 

Show  -how  the  accounts  would,  appear  on  a  set  of  books  after 
ten  years,  where  a  depreciation  (cash)  fund  is  maintained.  The 
plant  cost  $100,000  in  1905  and  was  estimated  to  last  15  years 
and  have  a  scrap  value  of  $10,000. 


DEPRECIATION— FIXED  PERCENTAGE  ON  DIMINISH, 
ING  VALUE  METHOD 

An  argument  is  frequently  made  that  the  straight  line 
method  does  not  give  accurate  results  because  the  actual  depre- 
ciation is  greater  during  the  early  life  of  a  machine  or  plant 
than  after  a  few  years  has  elapsed.  In  order  to  overcome  the 
objection  which  is  raised  to  the  straight  line  method  the  fixed 
percentage  on  diminishing  value  method  is  often  used.  By  this 
method  the  yearly  amount  written  off  to  cover  depreciation  of 
the  plant  grows  less  each  succeeding  year  until  the  scrap  value 


164          PROBLEMS  IN  COST  ACCOUNTING 

is  reached.  The  following  example  illustrates  the  method  of 
calculation. 

Example.  —  The  Federal  Publishing  Co.  purchased  10  new 
cylinder  presses  on  Jan.  2,  1910,  from  the  Hoe  Press  Co.  at 
$4,700,  each  of  which  was  estimated  to  last  10  years  and  to 
have  a  scrap  value  of  $200. 

In  figuring  depreciation  it  was  decided  that  the  fixed  per- 
centage on  diminishing  value  method,  whereby  depreciation  is 
charged  off  yearly  on  the  diminishing  value,  would  be  more 
equitable  than  the  straight  line  method  previously  used.  What 
was  the  annual  rate  of  depreciation  ? 

Solution 

The  following  formula  is  used  in  determining  the  per- 
centage of  diminishing  value  to  be  deducted  annually  : 


t. 
r  =  1  —  A  /  —    where 

V  =  present  value  of  asset. 
R  =  residual  value  after  n  periods. 
n  =  the  number  of  periods. 

r  =  percentage  of  diminishing  value  to  be  deducted  annually  or 
rate  of  depreciation. 

Substituting  the  value  given  in  the  above  equation  we  have  : 

10  /  $2,000 
r  =  1  —  \  I  -  • 
$47,000 

V  =  $47,000 

Here  R  =      2,000 

n  =          10 

Hence  we  have  : 


=  1.86289 
=  1  -  .729 
=  .271 


OVERHEAD  165 

The  rate  of  depreciation  is  .271  per  unit,  or  27.1  per  cent, 
the  correctness  of  which  can  be  proved  as  follows : 

Value  of  asset  at  beginning  of  period $47,000 . 00 

Depreciation  on  S47,000.00  at  27. 1% 12,737.00 


Value  of  asset  at  end  of  first  year '. $34,263 . 00 

Depreciation  on  $34,263.00  at  27.1% 9,285.27 


Value  of  asset  at  end  of  2nd  year $24,977 .73 

Depreciation  on  $24,977.73  at  27.1% 6,768.96 


Value  of  asset  at  end  of  3rd  year $18,208.77 

Depreciation  on  $18,208.77  at  27.1% 4,934.57 


Value  of  asset  at  end  of  4th  year $13,274.20 

Depreciation  on  $13,274 . 20  at  27 . 1% 3,597 . 30 


Value  of  asset  at  end  of  5th  year $9,676.90 

Depreciation  on  $9,676.90  at  27.1% 2,622.44 


Value  of  asset  at  end  of  6th  year $7,054 . 46 

Depreciation  on  $7,054.46  at  27.1% 1,911.76 


Value  of  asset  at  end  of  7th  year $5,142.70 

Depreciation  on  $5,142.70  at  27.1% 1,393.67 


Value  of  asset  at  end  of  8th  year $3,749.03 

Depreciation  on  $3,749.03  at  27.1% 1,015.98 


Value  of  asset  at  end  of  9th  year , $2,733.05 

Depreciation  on  $2,733 .05  at  27 . 1% 733 . 05 


Value  of  asset  at  end  of  10th  year $2,000.00 

Problem  49 

The  Montaulk  Printery  purchased  5  new  cylinder  presses 
on  Jan.  2,  1910,  from  the  Hoe  Press  Co.,  at  $5,500  each,  esti- 
mated to  last  12  years  and  to  have  a  scrap  value  equal  to  10 
per  cent  of  the  original  cost. 


166          PROBLEMS  IN  COST  ACCOUNTING 

In  figuring  depreciation  it  was  decided  that  the  -fixed  per- 
centage on  diminishing  value  method  should  be  used.  What 
was  the  per  cent  of  the  cost  to  be  written  off  annually  to  cover 
depreciation  ?  Prove  the  correctness  of  the  calculation. 

DEPRECIATION— SINKING  FUND  METHOD 

One  method  of  handling  depreciation  is  to  set  aside  annually 
a  sum  which  at  compound  interest  will  be  sufficient  to  replace 
the  plant  when  it  has  to  be  renewed.  This  plan  is  called  the 
sinking  fund  method.  The  calculation  of  the  amount  of  de- 
preciation required  under  this  method  is  shown  in  the  follow- 
ing example : 

Example. — How  much  should  be  contributed  annually  to  a 
si-nking  fund  in  order  to  provide  a  fund  sufficient  for  replac- 
ing a  plant  costing  $795,525,  estimated  to  have  a  life  of  10 
years  ?  The  money  in  the  sinking  fund  is  expected  to  earn,  on 
an  average,  3  per  cent  interest. 

Solution 

An  'annuity  of  $1  at  3  per  cent  interest,  compounded  an- 
nually, will  amount  to  $11.46387931,  at  the  end  of  10  years. 

One  dollar  divided  by  $11.46387931  is  equal  to  the  amount 
which  must  be  contributed  annually  to  a  sinking  fund  to  pro- 
duce $1  at  3  per  cent  compound  interest  at  the  end  of  ten  years. 
By  dividing,  $.08723051  is  obtained. 

The  accuracy  of  this  can  be  proved  as  follows : 

If  the  amount  of  the  annual  contribution  which  is  required 
to  liquidate  $1  at  the  end  of  10  years  is  $.08723051,  then  the 
amount  of  the  annual  contribution  required  to  provide  a  fund 
to  replace  a  plant  costing  $795,525,  at  the  end  of  10  years  (the 
fund  estimated  to  earn  on  an  average  of  3  per  cent),  is 
$.8723051  X  $795,525  or  $69,394.05. 


OVERHEAD 


1C7 


Contribution 

Yearly  Contribu- 
tions and  Interest 

Accumulated  Total 

Contribution,    1st 
Interest,            2nd 
Contribution,    2nd 
Interest,            3rd 
Contribution,    3rd* 
Interest,            4th 
Contribution,    4th 
Interest,            5th 
Contribution,    5th 
Interest,            6th 
Contribution,    6th 
Interest,            7th 
Contribution,    7th 
Interest,            8th 
Contribution,    8th 
Interest,            9th 
Contribution,    9th 
Interest,           10th 
Contribution,  10th 

vear.  . 

$.08723051 
.00261692 
.08723051 
.00531234 
.08723051 
.00808862 
.08723051 
.01094819 
.08723051 
.01389356 
.08723051 
.01692728 
.08723051 
.02005201 
.08723051 
.02327049 
.08723051 
.02658552 
.08723048 

$.08723051 

a 

a 

.  17707794 

a 

a 

.26962079 

• 

a 

.36493992 

a 

a 

.46311862 

• 

« 

.56424269 

u 

u 

.66840048 

u 

u 

.77568300 

u 

u 

.88618400 

u 

u 

1.00000000 

Problem  50 

How  much  should  be  contributed  to  a  sinking  fund  annually 
in  order  to  provide  a  sufficient  sum  to  replace  a  plant  costing 
$879,253,  estimated  to  last  15  years?  The  sinking  fund  assets 
are  estimated  to  earn  3V->  per  cent  on  an  average. 

DEPRECIATION  ON  MINES  AND  MINING  PROPERTIES 

In  the  steel  and  iron  industry  there  are  two  general  methods 
for  holding  and  operating  mining  properties.  When  the  owner 
operates  the  mine  himself,  it  is  called  a  fee  mine  in  contrast  to 
those  where  the  owner  leases  the  right  to  mine  to  another  person 
at  a  fixed  amount  per  ton  of  ore  mined,  called  royalty  mines. 
Where  fee  mines  are  operated,  the  mining  company  owns  the 
ore  deposits  and  all  improvements.  Expenditures  on  both  these 


168    PROBLEMS  IN  COST  ACCOUNTING 

accounts  represent  the  investment  of  capital  and  are  subject 
to  depreciation  charges  in  reckoning  the  cost  of  mining  ore. 
The  following  example  will  illustrate  the  method  of  calculating 
depreciation  on  mining  property. 

Example. — What  is  the  annual  amount  of  depreciation  and 
the  depreciation  per  ton  of  product  at  the  works  of  the  American 
Steel  Co.,  the  term  depreciation  being  understood  to  cover  (a) 
deterioration  and  obsolescence  of  the  plant,  and  (b)  exhaustion 
of  natural  resources?  Also  what  i&  the  investment  per  ton 
of  product? 

The  American  Steel  Co.  produces  544,500  tons  of  Bessemer 
pig  iron  annually,  using  Lake  ore  and  Connelsville  coke.  The 
investment  in  raw  material  and  in  the  plant  is  as  follows : 

1. — The  company  owns  an  ore  reserve,  estimated  to  contain 
30,000,000  tons  of  iron  ore,  which  cost  $3,000,000  and  which 
has  a  life  of  30  years  at  the  present  rate  of  production  of  1,000,- 
000  tons  of  iron  ore  annually.  It  requires  1.84  tons  of  iron  ore 
to  produce  1  ton  of  pig  iron,  so  that  the  1,000,000  tons  of  ore 
will  produce  544,500  tons  of  Bessemer  pig  iron  annually,  al- 
lowing for  some  scrap  being  reworked. 

2. — The  company  also  owns  a  coal  mine,  estimated  to  con- 
tain 28,170,000  tons  of  coal,  which  cost  $2,817,000  and  which 
has  a  life  of  30  years  at  the  present  rate  of  production  of  939,- 
000  tons  of  coal  annually.  Inasmuch  as  coal  yields  67  per  cent 
coke  the  939,000  tons  of  coal  will  yield  629,500  tons  of  coke 
annually,  the  amount  required  to  melt  1,000,000  pounds  of  iron 
ore  annually. 

3. — The  company  also  owns  a  limestone  quarry,  estimated 
to  contain  7,500,000  tons  of  limestone,  which  cost  $150,000, 
and  which  has  a  life  of  30  years  at  the  present  rate  of  produc- 
tion of  250,000  tons  of  limestone  annually.  It  requires  one- 
fourth  ton  of  limestone  per  ton  of  Lake  ore,  so  that  the  quantity 
required  for  1,000,000  tons  of  ore  annually  is  250,000  Ibs. 


OVERHEAD  169 

4. — The  company  also  has  invested  $1,000,000  in  mine  im- 
provements, equipment  and  miscellaneous  facilities  for  mining 
which  will  have  no  value  at  the  end  of  30  years  when  the  ore 
reserve  gives  out. 

5. — The  company  also  has  $1,500,000  invested  in  bee-hive 
coke  ovens,  which  are  required  to  produce  the  629,500  tons  of 
coke  used  annually.  At  the  end  of  30  years  these  ovens  will 
have  to  be  abandoned. 

6. — The  company  also  has  $4,628,000  invested  in  blast  fur- 
naces and  accessory  equipment  required  for  the  manufacture  of 
Bessemer  pig  iron.  It  is  estimated  that  at  the  end  of  30  years 
the  blast  furnace^  will  be  abandoned,  but  in  the  meantime  they 
will  be  kept  in  good  repair. 

7. — From  the  foregoing  data  calculate  the  amount  of  de- 
preciation annually  and  the  amount  per  ton  of  pig  iron  pro- 
duced on  the  basis  of  a  30-year  life  of  the  plant  and  an  annual 
production  of  544,500  tons  of  pig  iron. 

8. — The  average  investment  in  working  capital  is  $4,356,- 
000.  What  is  the  total  investment  per  ton  of  pig  iron  produced  ? 

Note:  The  straight  line  method  of  handling  depreciation 
is  to  be  used. 

Solution 

Ore  reserve $3,000,000 

Coal  mine 2,817,000 

Limestone  quarry 150,000 

Mine  improvements 1,000,000 

Coke  ovens 1,500,000 

Blast  furnaces 4,628,000 


Total  Cost $13,095,000 

Rate  of  depreciation  based  on  a  life  of  30 

years ; 3^% 

Annual  depreciation  at  3^%  • $436,500.00 

$436,500  -j-  544,500  =  $.80165289  Amt.  per  ton  for  depreciation 


170          PROBLEMS  IN  COST  ACCOUNTING 

Plant $13,095,000 

Working  Capital 4,356,000 


Total $17,451,000 

17,451,000  -i-  544,500  =  $32.05  investment  per  ton 

Problem  51 

What  is  the  annual  amount  of  depreciation  and  the  depre- 
ciation per  ton  of  product  at  the  works  of  the  Arcadia  Steel 
Co.,  the  term  depreciation  being  understood  to  cover  (a)  de- 
terioration and  obsolescence  of  the  plant  and  (b)  exhaustion  of 
natural  resources?  Also  what  is  the  investment  per  ton  of 
product  ? 

The  Arcadia  Steel  Co.  produces  544,500  tons  of  Bessemer 
pig  iron  annually,  using  Lake  ore  and  Connelsville  coke.  The 
investment  in  raw  materials  and  in  the  plant  is  as  follows : 

1. — The  Arcadia  Steel  Co.  owns  an  ore  reserve,  estimated 
to  contain  20,000,000  tons  of  iron  ore,  which  cost  $2,000,000 
and  which  has  a  life  of  20  years  at  the  present  rate  of  produc- 
tion of  1,000,000  tons  of  iron  ore  annually. 

2. — The  company  also  owns  a  coal  mine,  estimated  to  con- 
tain 18,780,000  tons  of  coal,  which  cost  $1,878,000  and  which 
has  a  life  of  20  years  at  the  present  rate  of  production  of  939,- 
)00  tons  of  coal  annually. 

3. — The  company  also  owns  a  limestone  quarry,  estimated 
to  contain  5,000,000  tons  of  limestone,  which  cost  $100,000  and 
which  has  a  life  of  20  years  at  the  present  rate  of  production  of 
250,000  tons  of  limestone  annually. 

4. — The  company  also  has  invested  $666,660  in  mine  im- 
provements, equipment,  and  miscellaneous  facilities  for  mining 
which  will  have  no  value  at  the  end  of  20  years  when  the  ore 
reserve  gives  out. 

5. — The  company  also  has  $1,000,000  invested  in  beehive 


OVERHEAD  1T1 

coke  ovens  which  are  required  to  produce  the  629,500  tons  of 
coke  used  annually.  At  the  end  of  20  years  these  ovens  will 
have  to  be  abandoned. 

6. — The  company  also  has  $3,084,000  invested  in  blast  fur- 
naces, and  accessory  equipment  required  for  the  manufacture 
of  Bessemer  pig  iron.  It  is  expected  that  at  the  end  of  20  years 
the  blast  furnaces  will  be  abandoned,  but  in  the  meantime  they 
will  be  maintained  in  good  repair. 

7. — From  the  foregoing  data  calculate  the  amount  of  de- 
preciation annually  chargeable  to  production  and  the  amount 
per  ton  of  pig  iron  produced,  on  the  basis  of  a  20-year  life  of 
the  plant  and  an  annual  production  of  544,500  tons  of  pig  iron. 

8. — The  average  investment  in  working  capital  is  $2,904,- 
000.  What  is  the  total  investment  per  ton  of  pig  iron  produced  ? 

9. — Set  up  the  necessary  property  and  depreciation  reserve 
accounts  and  show  how  they  would  appear  at  the  end  of  the 
tenth  year  from  the  time  operations  commenced. 

Note:  The  straight  line  method  of  handling  depreciation 
is  to  be  used. 


PART  V 
COSTS 


CHAPTEK  X 
COST  OF  MANUFACTURE 

When  the  product  in  any  factory  has  been  completed,  it  is 
necessary  to  summarize  the  cost  on  a  form  which  provides  for 
entering  the  various  elements  of 'cost.  The  form  should  be  so 
devised  as  to  provide  space  for  writing  a  description  of  the  ar- 
ticles produced,  quantity,  cost  of  material,  labor  and  overhead 
expense.  The  sum  of  the  material,  labor  and  overhead  gives  the 
total  cost  of  the  manufactured  product.  Conditions  vary  in 
each  business,  so  no  hard  and  fast  rule  can  be  laid  down 
for  figuring  the  cost.  However,  the  main  points  of  difference 
between  the  methods  followed  in  arriving  at  the  cost  of  pro- 
duction consist  in  the  way  the  overhead  is  applied.  The  ex- 
amples given  in  this  part  indicate  the  method  of  applying  over- 
head expense  in  the  following  five  ways. 

1.  Overhead  applied  as  a  percentage  on  labor. 

2.  Overhead  applied  on  the  basis  of  a  rate  per  productive 
hour. 

3.  Overhead  applied  on  the  basis  of  a  rate  per  machine  hour. 

4.  Overhead  applied  on  the  basis  of  the  number  of  units 
produced. 

5.  Overhead  and  direct  labor  together  applied  on  the  basis 
of  a  rate  per  sold  hour. 

The  more  complex  a  business  is,  the  more  difficult  it  gen- 
erally is  to  figure  costs.  So  far  as  possible,  the  method  adopted 

should  be  one  which  is  simple  and  yet  accurate, 

175 


176 


PKOBLEMS  IN  COST  ACCOUNTING 


COST  OF  MANUFACTURE— (OVERHEAD  APPLIED  AS  A 
PERCENTAGE  ON  LABOR) 

The  most  common  method  of  applying  overhead  expense 
when  figuring  the  cost  of  manufacture  is  to  add  a  certain  per- 
centage to  the  labor  cost.  In  order  to  illustrate  the  method  of 
calculation  attention  is  directed  to  the  following  computation 
showing  the  cost  of  manufacture  of  1,000  pounds  of  ginger 
snaps,  packed.  It  will  he  noticed  in  the  example  given  that 
66%  per  cent  is  added  to  the  total  labor  cost  in  order  to  ob- 
tain the  amount  of  the  overhead.  The  sum  of  the  material, 
labor,  and  overhead  gives  the  total  cost  as  shown. 

Example. — From  the  data  contained  in  the  following  table 
make  a  calculation  of  the  cost  of  manufacture  of  1,000  pounds 
of  ginger  snaps,  packed. 

The  time  taken  was  one  day  of  12  hours,  or  y6  week. 


Work  Done  Operation 

Rate  per  Week 

Operator 

1     Sifting  flour  

$5.00 

Mixer 

2    Making  sponge  

12.00 

• 

3    Mixing  dough   

5.00 

a 

4    Rolling  dough  into  sheets  

10.00 

Sheet  makers 

5    Cutting  dough  into  shapes  

10.00 

Cutter 

6    Putting  dough  into  pans  

4.00 

Panner 

7    Putting  dough  into  ovens  

11.00 

Oven  tender 

8    Baking  ginger  snaps  

9.00 

it                U 

9    Clearing  and  greasing  pans  

4.00 

Pan  boy 

10    Packing  ginger  snaps  

3.00 

Packers 

The  material  used  cost  $22.50  and  the  overhead  was  66% 
per  cent  of  the  labor  cost. 

Solution 

Cost   of  manufacture   of   1,000  pounds  of  ginger   snaps, 
packed. 


COSTS 

Time — 1  day  of  12  hours  =  J  week. 


177 


Operation 

Operator 

Rate 
per  Week 

Cost 

1    Sifting  flour  

Mixer  

$5.00 

$  -83M 

2    Making  sponge  

u 

12.00 

2.00 

3    Mixing  dough  

u 

5.00 

.83M 

4    Rolling  dough  into  sheets  

Sheet  maker  .  . 

10.00 

1.66H 

5    Cutting  dough  into  shapes  .... 

Cutter  

10.00 

1.66M 

6    Putting  dough  into  pan  

Panner  

4.00 

.66% 

7    Putting  dough  into  oven  

Oven  tender  .  . 

11.00 

1.83U 

8    Baking  ginger  snaps  

«            u 

9.00 

1.50 

9    Clearing  and  greasing  pans  .... 

Pan  boy  

4.00 

.66% 

10    Packing  ginger  snaps   

Packer  

3.00 

.50 

Total  Labor  Cost $12. 17 

Overhead  at  66%%  of  Labor 8. 11 

Cost  of  Material..  22.50 


Total  Cost..  $42.78 


Problem  52 

What  is  the  cost  of  manufacture  of  30,000  "No.  1  giant  can- 
non crackers  from  the  following  data? 

The  material  used  cost  $475  and  the  burden  is  equal  to  75 
per  cent  of  the  direct  labor. 


Operation 

Piece-work 
Rate  per  100 

1 

? 

Coloring,  pasting,  cutting  and  rolling  paper  into  cases.  . 
Crumping  and  closing  ends  of  cases  

$.0491 
.0500 

3 

Gluing  ends  of  cases  

.0277 

4 

Charging  crackers  

.0500 

5 

Inserting  fuse  

.0750 

6 

Packing  crackers  in  paper  boxes  

.0666 

Answer  

$642.16 

178          PKOBLEMS  IN  COST  ACCOUNTING 

COST  OF   MANUFACTURE— (OVERHEAD   APPLIED    ON 
THE  BASIS  OF  A  RATE  PER  PRODUCTIVE  HOUR) 

The  reason  why  a  manufacturer  can  afford  to  pay  employees 
a  premium  for  doing  a  job  in  less  than  the  standard  time  is  be- 
cause there  is  a  reduction  in  the  overhead  cost  on  the  job.  The 
amount  of  the  gain  in  any  particular  case  is  dependent  on  the 
employee's  hourly  rate,  the  burden  rate,  and  the  proportion  of 
the  value  of  the  time  saved  which  is  allowed  the  employee  as  a 
premium.  The  calculation  of  the  cost  of  manufacture  of  a 
wrought  iron  horseshoe  anvil  in  a  factory  where  the  premium 
wage  system  prevails,  and  where  overhead  is  distributed  on  the 
basis  of  the  number  of  hours  spent  on  the  job,  is  given  in  the 
following  example  for  the  purpose  of  showing  the  reduction  in 
cost  due  to  cutting  the  time  below  the  standard  allowance.  It 
will  be  noticed  that  the  standard  time  for  the  job  is  60  hours, 
while  the  actual  time  was  54%  hours,  which  results  in  a  de- 
crease of  the  overhead  from  $12.00  to  $10.95,  a  difference  of 
$1.05.  The  premium  paid  the  employee  was  $.42,  which  leaves 
a  net  gain  of  $.63  ($1.05 — $.42)  on  the  overhead.  In  addition 
there  is  a  saving  of  $.84  on  the  actual  time  taken  as  compared 
with  the  standard  allowance.  The  result  is  seen  to  be  a  net 
saving  to  the  employer  of  $1.47. 

Example. — What  is  the  cost  of  manufacture  of  one  450- 
pound  wrought  iron  horseshoe  anvil,  141/2  x  4-inch  steel  face, 
10-inch  horn  ?  The  premium  wage  system  prevails,  the  saving 
in  time  between  the  standard  time  and  the  actual  time  being 
divided  equally  between  the  employee  and  the  company.  The 
material  cost  $.03  per  pound  and  the  overhead  amounted  to  $.20 
per  hour.  Employees  work  10  hours  daily. 

How  much  did  the  proprietor  gain  by  giving  the  employees 
a  premium  for  the  time  saved  ? 


COSTS 


179 


Operations 

Standard 
Time 

Actual 
Time 

Labor 
Rate  per 
Day 

Heating  bloom  and  hammering  it  to  shape 
Welding  corners  to  base  

H.          M. 
9           0 

12         0 
9        0 
6        0 
5        0 
8        0 
10        0 
1        0 

H. 

8 
10 
8 
5 
4 
7 
9 
1 

M. 

30 
10 
0 
50 
45 
30 
0 
0 

$1.50 
1.50 
1.50 

1.50 
1.50 
1.50 
2.00 
1.25 

Welding  on  tail  and  horn     

Welding  on  steel  face  

Rough  finishing  anvil  

Tempering  anvil  

Finishing  anvil  

Painting  anvil   

Solution 

COST  OF  MANUFACTURE  OF  1,150-PouND  WROUGHT  IRON 
HORSE-SHOE  ANVIL 


Stand- 

Act- 

Rate 

Stand- 

Act- 

Cut 
Under 

Employ- 

Operations 

ard 
Time 

ual 
Time 

per 
Day 

ard 
Cost 

ual 

Cost 

Standard 
Cost 

ee's 
Share 

Heating  bloom  and  ham- 

H.   M. 

H.    M. 

mering  it  to  shape  .... 

9 

8    30 

$1.50 

$1.35 

$1.27^ 

$.071A 

$.03% 

Welding  corners  to  base  . 

12 

10     10 

1.50 

1.80 

1  52}^ 

.27"^ 

.  13% 

Welding  on  tail  and  horn 

9 

8      0 

1.50 

1.35 

1.20 

.15 

•  07  "4 

Welding  on  steel  face  .  .  . 

6 

5     50 

1.60 

.90 

•  87}^ 

.021$ 

.01% 

Rough-finishing  anvil  .  .  . 

5 

4     45 

1.50 

.75 

.71  Ji 

.03% 

01  "%, 

Tempering  anvil  

8 

7     30 

1.50 

1.20 

1  12^| 

073^ 

.03% 

Finishing  anvil  

10     .. 

9       0 

2.00 

2.00 

1.80 

.20 

.10 

Painting  anvil  

1 

1       0 

1.25 

" 

" 

Total  

60     .. 

54     45 

$9.47^ 

$8.63% 

$.83% 

$.41Ji 

Cost  Summary 

Actual 
Cost 

Standard 
Cost 

Actual  Cost  Com- 
pared with  Stand- 
ard Cost 

Increase 

Decrease 

Cost  of  Labor  per  above  analysis  

$8.64 
.42 
10.95 
4.50 

$9.48 

12.00 
4.50 

$.81 

"i!6s 

$.42 

Cost  of  material,  150  pounds  at  $.03  per  pound     .... 

Total  Cost  

$24.51 

$25.98 

$.42 

$1.89 

Net  Decrease  

fl  47 

180 


PEOBLEMS  IN  COST  ACCOUNTING 


Problem  53 

What  is  the  cost  of  manufacture  of  1  oak  mantel,  60  x  76 
inches,  10-inch  shelf,  12  x  30-inch  mirror,  piano  finish?  The 
premium  wage  system  prevails,  the  saving  in  time  between  the 
standard  and  the  actual  time  being  divided  equally  between  the 
employee  and  the  company.  The  material  cost  $10.25  and  the 
factory  overhead  amounted  to  $.30  per  hour.  Employees  work 
10  hours  daily. 

How  much  did  the  proprietor  lose  or  gain  by  giving  the  em- 
ployees a  premium  for  the  time  saved  ? 


Operations 

Standard 
Time 

Actual 
Time 

Labor 
Rate  per 
Day 

Cutting  lumber  into  lengths  

H. 
2 

2 
2 
5 
2 
2 
2 
5 
3 
2 
3 
3 
5 
1 
1 

M. 

30 
30 
0 
0 
0 
30 
30 
0 
0 
0 
0 
0 
0 
0 
0 

H. 

2 
2 

1 
4 
2 
2 
2 
4 
3 
2 

3 

2 

4 
1 
1 

M. 

0 
0 
45 
0 
0 
15 
0 
0 
0 
0 
0 
45 
0 
0 
0 

$3.00 
3.00 
3.00 

3.00 
3.00 
3.00 
3.00 
3.00 
3.50 
2.50 
2.50 
2.50 
2.50 
3.00 
3.00 

Cutting  lumber  into  widths     

Marking  lumber        

Planing  lumber  

Boring  dowell  holes  

Cutting  brackets  and  scrolls  

Making  molding  for  mantel  

Putting  mantel  together  

Carving  ornaments  

Smoothing  mantel  

Rubbing  mantel  

Varnishing  mantel  

Polishing  mantel  

Putting  in  mirror  

Putting  on  backing  

COST   OF  MANUFACTURE— (OVERHEAD   APPLIED   ON 
THE  BASIS  OF  A  RATE  PER  MACHINE  HOUR) 

The  piece  work  system  of  paying  wages  makes  it  very  easy 
to  figure  the  labor  cost.  However,  the  problem  of  distributing 
burden  against  various  jobs  has  to  be  dealt  with  the  same  as 
under  other  systems  of  wage  payment.  In  order  to  illustrate 


181 


how  the  cost  of  manufacture  is  figured  when  the  piece  work  sys- 
tem of  paying  wages  prevails  and  overhead  is  distributed  on 
the  basis  of  the  number  of  machine  hours  spent  on  the  job  in 
each  department,  reference  is  made  to  the  following  example: 
Example. — Cost  of  manufacture  of  500  ^-inch  Hexagon 
Head  Stove  Bolts. 


Operation 

Time  Worked 

Labor 
per  1,000 

Burden 
per  Hour 

1 

2 
3 

4 

Cutting  iron  into  lengths         ...    . 

H. 

M. 

35.7 
22.9 
40.0 
22.9 

$.238 
1.310 
.444 
.794 

$.22 
.35 
.25 
.30 

Heading  bolts  

2 

1 

2 

Beveling  ends  of  bolts  

Threading  bolts  

The  cost  of  material  used  was $7 . 55 

Solution 

Cost  of  Manufacture  of  500  i/^-inch  Hexagon  Head  Stove 
Bolts. 


Operations 

Time  Worked 

Labor 
per  1,000 

Labor 
per  500 

Burden 
per  Hour 

Total 
Burden 

1    Cutting    iron    into 
lengths  

H.         M 

35.7 

$.238 

$.119 

$.20 

$.119 

2    Heading  bolts  
3    Beveling    ends    of 
bolts  

2      22.9 
1      40  0 

1.310 
.444 

.655 
.222 

.35 
.25 

.834 
.483 

4    Threading  bolts  .  .  . 

2      22.9 

.794 

.397 

.30 

.714 

• 

$1.393 

$2.150 

COST  SUMMARY 

Cost  of  labor,  per  above  analysis $1 .39 

Cost  of  burden,  per  above  analysis 2 . 15 

Cost  of  material,  per  above  analysis 7 . 55 


Total  cost $11 .09 

Cost  per  100 ,, ,,.... $2.^ 


182 


PKOBLEMS  IN  COST  ACCOUNTING 


Problem  54 

What  is  the  cost  of  manufacture  of  12  ash  bedsteads,  6  feet 
high,  4  feet  6  inches  wide,  square  posts  ?  The  day  rate  system 
of  wages  prevails  and  the  indirect  expense  is  distributed  on  the 
machine  hour  basis.  Employees  work  10  hours  a  day,  sixty 
hours  a  week.  Material  cost  $49.75. 


Time 
Worke 

i 

Labor 
Rate  per 

Indirect 
Expense  per 
Machine 
Hour 

Cutting  stock  into  sizes  

H. 

6 

M. 

0 

$1.75  day 

$.20 

Gluing  stock  

42 

0 

1.75    " 

.07 

Planing  and  grooving  stock  

1 

15 

1.75    " 

.32 

Resawing  stock  

22 

n 

1.35    " 

.20 

Squaring  stock  

2 

o 

1.25    " 

.20 

Tenoning  stock  

1 

n 

1.35    " 

.18 

Grooving  posts  

1 

15 

7.00  week 

.20 

Molding  footboard  caps  

1 

n 

1.50  day 

.25 

Smoothing  stock  

6 

0 

1.35    " 

.15 

Cutting  rail  fastenings  in  rails  and 
posts  

1 

30 

1.35    * 

.20 

Cutting    out    slat   feet,    fastening 
them  to  rails,   and  putting  on 
rail  irons  

3 

30 

1.00    " 

.27 

Boring  posts  for  casters  

30 

0 

1.50    " 

.25 

Putting  headboard  and  footboards 
together  

8 

0 

1.50    " 

.10 

Varnishing  bedsteads  

19 

30 

1.85    " 

.07 

In  addition  to  the  indirect  expense  above  shown,  an  addi- 
tional 10  per  cent  has  to  be  added  to  the  cost  of  the  material, 
labor  and  expense  to  cover  general  mill  expense  not  included  in 
the  hourly  rates. 


COSTS 


183 


COST   OF  MANUFACTURE— (OVERHEAD   APPLIED   ON 
THE  BASIS  OF  THE  NUMBER  OF  UNITS  PRODUCED) 

In  some  industries  it  is  a  very  common  practice  to  figure 
the  indirect  factory  expense  on  the  basis  of  the  number  of  dozen 
articles  produced.  This  is  the  method  adopted  in  the  knit  goods 
industry.  Reference  to  the  following  example  will  show  how 
the  cost  of  manufacture,  including  indirect  factory  expense,  is 
figured  in  a  mill  making  cotton  hosiery. 

Example. — What  is  the  cost  of  manufacture  of  100  dozen 
pairs  of  cotton  seamless  half  hose,  weighing  1%  pounds  per 
dozen  pairs  ?  The  material  costs  40  cents  per  dozen  pairs  and 
the  indirect  factory  expense  is  21  cents  per  dozen  pairs. 


Operation 

Piece  Work 
per  Doz   Pairs 

1 

Knitting  rib  tops  

$.005 

2 

Cutting  rib  tops  into  lengths  

.004 

3 

Picking  rib  tops  on  to  needle  cylinders  

.010 

4 

Putting  on  rib  tops  and  knitting  bodies  of  hose  

.035 

5 

Closing  toes  

.020 

6 

Inspecting  hose  and  mending  holes  

.003 

7 

Turning  hose  

.001 

8 

Shaping  hose  

.004 

q 

Pressing  hose  and  putting  on  finish  

.002 

10 

Pairing  hose  

.006 

n 

Folding  hose  and  tving  them  in  dozens  

.003 

i? 

Packing  hose  in  cases  and  marking  goods  

.001 

The  method  of  calculating  the  cost  of  producing  hosiery  will 
illustrate  the  procedure  to  be  followed  in  figuring  costs  in  other 
branches  of  the  knit  goods  industry,  as  the  same  principles  apply 
to  all  products  made  on  knitting  machines. 


184 


PROBLEMS  IN  COST  ACCOUNTING 


Solution 
MANUFACTURING  COST  COTTON  SEAMLESS  HALF  HOSE 


Operation  Number 

Dozen  Pairs  Made 

Piece  Work 
Rate  per  Dozen 

Cost  of  Operation 

1 

100 

$.005 

$.50 

2 

100 

.004 

.40 

3 

100 

.010 

1.00 

4 

100 

.035 

3.50 

5 

100 

.020 

2.00 

6 

100 

.003 

.30 

7 

100 

.001 

.10 

8 

100 

.004 

.40 

9 

100 

.002 

.20 

10 

100 

.006 

.60 

11 

100 

.003 

.30 

12 

100 

.001 

.10 

Total  Labor  

$9.40 

Summary 

100  Dozen  pairs 

Labor  cost $9.40 

Indirect  factory  expense  21c.  per  dozen  ^>airs .  21 . 00 

Material  cost,  40c.  per  dozen  pairs 40 . 00 


Total  factory  cost $70.40 


Problem  55 

What  is  the  cost  of  manufacture  of  100,000  feet  of  white 
pine  boards  in  a  mill  where  the  day  rate  system  of  paying  wages 
is  in  force?  The  overhead  is  distributed  on  the  basis  of  $.75 
per  1,000  feet  of  boards  produced.  The  timber  used  cost  $3,- 
'750.  The  following  table  gives  the  time  worked  on  each  opera- 
tion: 


COSTS 


100,000  FEET  WHITE  PINE  BOARDS 


185 


Time  Worked 

Rate  per 

1     Sorting  logs  in  boom,  and  running  them  to 
slide  

H. 
3 

7 
4 
4 
4 
4 
4 
4 
4 
4 
4 
4 
4 
4 
8 
4 
4 
8 
15 
15 
8 
4 
22 

15 

M. 

45 
15 
45 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
0 
15 
0 
0 
15 
30 
30 
15 
0 
45 

30 

$2.00 
1.50 
1.25 
1.75 
1.50 
2.00 
1.75 
2.50 
5.00 
1.75 
1.75 
2.25 
4.00 
1.75- 
1.75 
1.50 
2.75 
1.50 
1.75 
2.25 
1.75 
1.75 
1.75 

1.62^ 

day 

« 
u 
u 
u 
u 
u 
u 
u 
u 
u 
u 
u 
u 
u 
u 
u 
u 
u 
u 
u 
u 
u 

u 

2    Grinding  logs  to  slide  chain  

3    Counting  logs  

4    Kicking  logs  from  chain  to  log  deep  .  .  ;  

5    Straightening  logs  on  deck  

6    Raising  two  sides  of  logs  

7    Securing  logs  on  carriage  

8    Adjusting  logs  for  thickness  of  cant  

9    Cutting  logs  into  carts  

10    Clearing  slabs  and  cants  from  saw  

11     Securing  logs  on  carriage        

12    Adjusting  logs  for  thickness  of  cant  

13    Cutting  logs  into  cants  

14    Clearing  slabs  and  cants  from  saw  

15    Transferring  cants  to  gang  saws  

16    Straightening  cants  for  gang  

17    Cutting  lumber  

18    Conveying  shims  to  slasher   

19    Clearing  gang  and  pressing  lumber  to  edge  .  . 
20    Edging  lumber  and  cutting  it  into  strips  .... 
21     Taking  lumber  from  edgers  

22    Clearing  edges  and  passing  lumber  to  trimmer 
23     Cutting  lumber  into  lengths  

24    Clearing  trimmers  and  dropping  lumber  on 
rolls     

Example. — What  is  the  cost  of  manufacture  of  100  dozen 
cans  of  peas,  24  pounds  per  dozen?  Employees  worked  12 
hours  a  day.  Twenty-two  bushels  of  peas  were  used  at  a  cost  of 
$1.65  per  bushel  shelled.  The  cans  cost  $17.50  per  1,000  and 
the  overhead  amounted  to  $.75  per  100  cans. 

Reference  to  the  following  example  will  show  the  method 
of  calculating  the  cost  of  100  dozen  cans  of  peas  made  in  a  fac- 
tory where  the  operators  are  paid  by  the  day,  and  burden  is 
distributed  on  the  basis  of  the  number  of  cans  of  peas  produced. 


186 


PROBLEMS  IN  COST  ACCOUNTING 


H. 

M. 

Rate 
per  Day 

Hulling  peas  

270 

0 

$  50 

Conveying  peas  to  cleaner  

10 

48 

.50 

Measuring  and  washing  peas  

3 

36 

1.00 

Conveying  peas  to  dip  kettle  

3 

36 

1.00 

Blanching  peas  

3 

36 

2.50 

Putting  peas  into  cans  •  

18 

0 

.50 

Filling  cans  with  brine  

3 

36 

.50 

Wiping  tops  of  cans  

3 

36 

.50 

Capping  cans  and  closing  vents  ,  

3 

36 

3  00 

Conveying  cans  to  process  kettle  

3 

36 

.50 

Processing  peas  

3 

36 

3.50 

Removing  cans  from  process  kettle  

3 

36 

.50 

Conveying  and  cooling  cans  

3 

36 

3.50 

Conveying  cans  to  warehouse  

3 

36 

.50 

Piling  cane  

7 

1? 

.50 

Labelling  and  packing  cans  in  case  

7 

1? 

.50 

Nailine  tons  on  cases  .  . 

a 

0 

2.50 

Solution 

Cost  of  manufacture  of  100  dozen  cans  of  peas,  24  pounds 
per  dozen. 


Operations 

Time  Taken 

Rate 
per  Day 

Labor  Cost 

Hulling  Peas  

H. 

270 
10 
3 
3. 
3 
18 
3 
3 
3 
3 
3 
3 
3 
3 
7 
7 
3 

Total  . 

M. 
0 

48 
36 
36 
36 
0 
36 
36 
36 
36 
36 
36 
36 
36 
12 
12 
0 

$.50 
.50 
1.00 
1.00 
2.50 
.50 
.50 
.50 
3.00 
.50 
3.50 
.50 
3.50 
.50 
.50 
.50 
2.50 

$11.25 
.45 
.30 
.30 
.75 
.75 
.15 
.15 
.90 
.15 
1.05 
.15 
1.05 
.15 
.30 
.30 
-62H 

Conveying  peas  to  cleaner  

Measuring  and  washing  peas  

Conveying  peas  to  dip  kettle  

Blanching  peas  

Putting  peas  into  cans  

Filling  cans  with  brine  

Wiping  tops  of  cans  

Gaping  cans  and  closing  vents  

Conveying  cans  to  process  kettle  

Processing  peas       

Removing  cans  from  process  kettle  .... 
Conveying  and  cooling  peas   

Conveying  cans  to  warehouse  

Piling  cans                     

Labeling  and  packing  cans  in  cases  .... 
Nailing  tops  on  cases  

$18.77^ 

COSTS  187 

SUMMARY 

Labor  cost,  per  above  analysis $18 . 78 

Burden,  on  1,200  cans  at  $.75  per  100 9.00 

Material  cost,  22  bushels  of  peas  at  $1 . 65  per 

bushel 36.30 

Cans  at  $17 . 50  per  1,000 21.00 

Total  cost $85.08 

Cost  per  dozen $ .  8508 

Problem  56 

What  is  the  cost  of  manufacture  of  1,000  dozen  cans  of 
apricots,  weighing  29  pounds  per  dozen?  The  material  costs 
21/2  cents  per  pound  and  the  indirect  factory  expense  is  18  cents 
per  dozen  cans.  Cans  cost  I1/-?  cents  each. 


Operation 

Piece  Work  Labor 
per  100  Dozen 

1 

Sorting  apricots  .•  

$.45 

2 

Halving  apricots  and  removing  pits  

3.50 

4 

Putting  apricots  into  cans  and  weighing  

5  00 

6 

Making  syrup  

.05 

7 

Filling  cans  with  syrup  

.20 

8 

Capping  cans  .""  

.35 

10 

Exhausting  air  in  cans  

.05 

11 

Closing  vents  in  cans  

.30 

1? 

Cooking  apricots  

.09 

15 

Handing  cans  to  laborers  

.07 

16 

Labeling  cans  

.37 

17 

Packing  cans  

.15 

COST  OP  MANUFACTURE  OVERHEAD  AND  DIRECT 

LABOR  TOGETHER  APPLIED  ON  THE  BASIS  OF 

A  RATE  PER  SOLD  HOUR 

In  the  printing  and  publishing  industry  the  cost  of  manu- 
facture is  found  by  taking  the  sum  of  the  departmental  costs 
per  hour  for  labor  and  overhead  combined,  cost  of  stock  and 
burden  on  stock.  The  burden  added  to  stock  is  to  cover  the 
cost  of  handling  and  storing  material.  The  cost  of  manufactur- 


188 


PROBLEMS  IN  COST  ACCOUNTING 


ing  1,000  pamphlets  would  be  figured  as  shown  in  the  follow- 
ing example. 

Example. — What  is  the  cost  of  manufacture  of  1,000  pam- 
phlets, 36  pages  each  6y8  x  8%  inches,  covers  printed  in  two 
(2)  colors,  using  the  following  data? 


Operation 

Time 

Departmental 
Cost  per  Hour 

1    Printing  sheets  

H. 

24 

M. 

n 

$.65 

2    Printing  covers,  three  impressions  

8 

n 

.75 

3    Cutting  covers  

0 

36 

.48 

4    Folding  sheets  

9 

o 

.40 

5    Gathering  folded  sheets  

1 

48 

.40 

6    Stitching  books  

4 

1?, 

.80 

7    Pasting  on  covers  

2 

94 

.40 

8    Trimming  books  

1 

48 

.48 

The  stock  for  the  job  cost  $115.75,  to  which  amount  8.82 
per  cent  has  to  be  added  to  cover  the  cost  of  handling  and  stor- 
ing stock. 

Solution 

PRINTING  AND  PUBLISHING  INDUSTRY — COST  OF  1,000 
PAMPHLETS 


Operation 

Time 

Cost 
per  Hour 

Total 

1    Printing  sheets  

H 

?A 

M. 

0 

$.65 

$15.60 

2    Printing  covers  (3  impressions)  .  .  . 
3    Cut  covers  

8 
0 

0 
36 

.75 

.48 

6.00 
.25 

4    Fold  sheets  

q 

0 

.40 

3.60 

5    Gather  sheets      

1 

48 

.40 

.72 

6    Stitching  books   

4 

12 

.80 

3.36 

7    Pasting  on  covers         

2 

24 

.40 

.96 

8    Trimming  books  .  

1 

48 

.48 

.86 

Cost  of  labor  and  overhead 

$31.35 

Cost  of  stock 

115.75 

8  .  82%  burden  on  stock  .... 

10.21 

Total  cost  

$157.31 



COSTS 


189 


Problem  57 

What  is  the  cost  of  manufacture  of  500  books,  100  pages 
x  8%  inches,  using  the  following  data: 


Operation 

Time 

Departmental 
Cost  per  Hour 

Cutting  stock  

H. 

1 

M. 

0 

$.25 

Composition  

140 

30 

.45 

Press  Work  

10 

0 

.70 

Bindery  

200 

30 

.15 

The  stock  for  the  job  cost  $210,  to  which  amount  10  per 
cent  has  to  be  added  to  cover  the  cost  of  handling  and  storing. 


CHAPTER  XI 
SPECIAL  RECORDS  AND  CHARTS 

In  connection  with  the  work  of  figuring  costs  it  is  fre- 
quently found  desirable  to  prepare  certain  statistical  tables. 
A  common  form  of  table  is  a  tabulation  of  sales  and  cost  of 
sales  by  departments  or  classes  of  goods  handled.  It  sometimes 
happens  that  what  is  wanted  is  a  comparison  of  the  labor  cost 
with  the  standard  allowance.  Frequently  percentages  of  ef- 
ficiency for  one  or  more  machines  are  wanted,  as  for  the  looms 
in  a  weaving  mill  in  order  to  ascertain  whether  or  not  the  pro- 
duction is  up  to  the  standard.  In  order  to  facilitate  the  hand- 
ling of  a  large  number  of  figures,  machine  tabulated  records 
are  often  introduced.  A^  special  form  of  punch  card  is  used 
with  the  machine  in  order  that  the  records  may  be  tabulated 
automatically.  Data  gathered  by  the  cost  accountant  can  often 
be  presented  best  in  the  form  of  graphic  charts. 

Reference  to  the  cases  following  will  bring  out  some  of  the 
features  of  the  special  records  and  charts  sometimes  used  in  con- 
nection with  cost  work. 

SALES  ANALYSIS 

It  is  desirable  to  make  an  analysis  of  sales  so  as  to  break 
up  the  selling  price  into  cost  and  gross  profit  on  sales.  The 
problem  involved  will  readily  be  understood  by  referring  to  the 
following  example. 

Example. — Make  an  analysis  of  sales  for  the  Prepared  Co- 
coanut  Mfg.  Co.,  which  sells  four  kinds  of  Peerless  brand  co- 
coanut  known  as  shred,  thread,  macaroon  and  desiccated  brand 

190 


COSTS  191 

cocoanut,  from  the  following  data,  so  as  to  show  the  gain  on 
manufacturing  each  kind  of  product. 

Jan.  3,  1916.  Sold  100,000  Ibs.  Shred  Cocoanut  in  barrels 
for  $11,500,  which  cost  $.08  per  Ib.  to  manufacture. 

Jan.  4,  1916.  Sold  40,000  Ibs.  Thread  Cocoanut  in  50-lb. 
boxes,  for  $4,900,  which  cost  $.08%  per  Ib.  to  make. 

Jan.  6,  1916.  Sold,  8,000  Ibs.  Macaroon  Cocoanut  in  20- 
Ib.  pails  for  $1,020,  which  cost  $.09^  per  Ib.  to  produce. 

Jan.  10,  1916.  Sold  15,000  Ibs.  Desiccated  Cocoanut 
in  barrels  for  $1,725,  which  cost  $.08  per  Ib.  to  make. 

Jan.  12,  1916.  Sold  12,300  Ibs.  Macaroon  Cocoanut  in 
25-lb.  boxes  for  $1,537.50,  which  cost  $.09  per  Ib.  to  manu- 
facture. 

Jan.  14,  1916.  Sold  30,000  Ibs.  Shred  Cocoanut  in  50-lb. 
boxes  for  $3,675,  which  cost  $.08%  per  Ib.  to  produce. 

Jan.  16,  1916.  Sold  40,000  Ibs.  Shred  Cocoanut  in  25-lb. 
boxes  for  $5,000,  which  cost  $.09  per  Ib.  to  make. 

Jan.  17,  1916.  Sold  70,000  Ibs.  Thread  Cocoanut  in  .barrels 
for  $8,050,  which  cost  $.08  per  Ib.  to  make. 

Jan.  20,  1916.  Sold  30,000  Ibs.  Macaroon  Cocoanut  for 
$3,675,  which  cost  $.083/4  per  Ib.  to  make. 

Jan.  25,  1916.  Sold  10,000  Ibs.  Thread  Cocoanut  in  20-lb. 
pails  for  $1,275,  which  cost  $925. 

Jan.  27,  1916.  Sold  24,000  Ibs.  Shred  Cocoanut  in  20-lb. 
pails  for  $3,060,  which  cost  $2,220. 

Jan.  30,  1916.  Sold  20,000  Ibs.  Thread  Cocoanut  in  25-lb. 
boxes  for  $2,500,  which  cost  $1,800. 

Jan.  31,  1916.  The  following  bags  and  by-products  were 
disposed  of:  2,000  bags  at  $.10  each,  11,500  Ibs.  junk  at  $.01 
per  Ib.,  600  Ibs.  rancids  at  $.02  per  Ib.,  and  7,000  Ibs.  of  rot 
and  shavings  at  $.011  per  Ib.  The  bags  and  by-products  are 
credited  to  the  factory  at  selling  price  and  so  show  no  gain  on 
the  transaction. 


192 


PROBLEMS  IX  COST  ACCOUNTING 


Solution 

SlIRED    COCOAXUT 


Date 

Pounds  Sold 

Cost  per  Lb. 

Cost 

Selling  Price 

Gain 

Jan.   3,1916 
«     14 

«     16 

"     27 

100,000 
30,000 
40,000 
24,000 

$.08 
.08% 
.09 

$8,000 
2,625 
3,600 
2,220 

$11,500 
3,675 
5,000 
3,060 

1,050 

1,400 
840 

Total   

194,000 

$16,445 

$23,235 

$6,790 

THREAD  COCOANUT 


Date 

Pounds  Sold 

Cost  per  Lb. 

Cost 

Selling  Price 

Gain 

Jan.   4,1916 
"     17 
«     25 
"     30 

Total  .  .  . 

$40,000 
70,000 
10,000 
20,000 

$.08% 
.08 

.09 

$3,500 
5,600 
925 
1,800 

$4,900 
8,050 
1,275 
2,500 

$1,400 
2,450 
350 
700 

140,000 

$11,825 

$16,725 

$4,900 

MACAROON  COCOANUT 


Date 

Pounds  Sold 

Cost  per  Lb. 

Cost 

Selling  Price 

Gain 

Jan.   6,1916 

"     12 
"     20 

Total  .  .  . 

8,000 
12,300 
30,000 

$.09^ 
.09 

.08M 

$740 
1,107 
2,625 

$1,020 
1,537.50 
3,675 

$280 
430.50 
1,050 

50,300 

$4,472 

$6,232.50 

$1,760.50 

DESICCATED  COCOANUT 


Date 

Pounds  Sold 

Cost  per  Lb. 

Cost 

Selling  Price 

Gain 

Jan.  10,  1916 

15,000 

$.08 

$1,200 

SI,  725 

$525 

COSTS 
SUMMARY 


193 


Class  of  Cocoanut 

Pounds  Sold 

Cost 

Selling  Price 

Gain 

Shred  

194,000 

$16,445 

$23,235 

$6,790 

Thread  

140,000 

11,825 

16,725 

4,900 

Macaroon  

50,300 

4,472 

6,232.50 

1,760.50 

Desiccated  

15,000 

1,200 

1,725 

525 

Total      

399,300 

$33,942 

$47,917  50 

$13,975.50 

BY-PRODUCT  CREDITED  TO  FACTORY  AT  SELLING  PRICE 


Class 

Quantity 

Unit  of  Selling  Price 

Selling  Price 

Bags  .  . 

2,000 

$.10ea. 

$200 

Junk     

11,500  Ibs. 

.01    perlb. 

115 

Ranucide  

600   " 

.02     "     u 

12 

Rot  &  Shavings  

7,000   " 

.011   u     u 

77 

Total  

$404 

Problem  58 

Make  an  analysis  of  sales  for  the  Colonial  Steel  and  Iron 
Co.  from  the  following  data  so  as  to  show  the  gain  in  manu- 
facturing each  kind  of  product. 

Jan.  3.  Sold  17,900  tons  of  Large  Bessemer  Billets  for 
$20.18  per  ton,  which  cost  $17.72  per  ton. 

Jan.  4.  Sold  13,400  tons  of  Large  Basic  Open  Hearth 
Billets  for  $20.87  per  ton,  which  cost  $18.45  per  ton. 

Jan.  6.  Sold  4,800  tons  of  Bessemer  Sheet  bars  for  $18.98 
per  ton,  which  cost  $16.45  per  ton. 

Jan.  10.  Sold  14,000  tons  of  Heavy  Eails  for  $22.23  per 
ton,  which  cost  $18.29  per  ton. 

Jan.  14.  Sold  6,000  tons  of  Large  Bessemer  Billets  for 
$20.18  per  ton,  which  cost  $17.72  per  ton. 


194          PROBLEMS  IN  COST  ACCOUNTING 

Jan.  16.  Sold  5,000  tons  of  Bessemer  Sheet  Bars  for  $18.98 
per  ton,  which  cost  $16.45  per  ton. 

Jan.  17.  Sold  1,000  tons  of  Universal  Plates  for  $21.82 
per  ton,  which  cost  $17.70  per  ton. 

Jan.  20.  Sold  1,740  tons  of  structural  shapes  for  $26.52 
per  ton,  which  cost  $20.21  per  ton. 

Jan.  25.  Sold  1,000  tons  of  Large  Basic  Open  Hearth  Bil- 
lets for  $20.87,  which  cost  $18.45  per  ton. 

Jan.  30.  Sold  6,800  tons  of  wire  rods  for  $27.21  per  ton, 
which  cost  $21.42  per  ton. 

Jan.  31.  Sold  5,500  tons  of  Universal  plates  for  $21.82  per 
ton,  which  cost  $17.70  per  ton. 

WORKMEN'S  EFFICIENCY 

It  is  frequently  desirahle  to  keep  an  individual  workman's 
time  record  for  the  purpose  of  showing  his  efficiency.  The 
method  of  procedure  is  to  compare  the  actual  cost  with  the 
standard  allowance.  Periodically  the  record  is  balanced,  and 
if  net  gains  are  greater  than  net  losses,  the  employee  is  due  for 
an  increase  in  rate.  The  following  example  illustrates  the 
method  of  procedure: 

Example. — Devise  an  individual  workman's  labor  record 
sheet,  suitable  for  charging  or  crediting  each  workman  accord- 
ing as  he  exceeds  or  reduces  the  limit  set. 

Make  the  necessary  entries  to  record  the  following  data  for 
the  two-week  period  ending  Jan.  19,  1917: 

Workman  Samuel  Lane,  on  Order  No.  4,000,  using  Machine 
No.  156,  made  20  parts  in  20  hours,  15  min.,  his  rate 
being  $.26  per  hour,  and  the  standard  cost  $5.20. 

From  the  showing  made  in  the  past  Samuel  Lane  was  given 
an  increase  in  rate  from  $.26  to  $.28  per  hour.  On  Order  No. 


COSTS 


195 


4,009,  using  Machine  No.  156,  he  made  22  parts  in  37  hours, 
30  min.,  the  standard  cost  being  $11.12. 

On  Order  No.  4,100,  using  Machine  No.  156,  he  made  1 
part  in  1  hour,  15  min.,  the  standard  cost  being  $.60. 

On  Order  !STo.  4,110,  using  Machine  !STo.  156,  he  made  8 
parts  in  22  hours,  38  min.,  the  standard  cost  being  $4.37. 

On  Order  No.  4,115,  using  Machine  No.  156,  he  made  2^2 
parts  in  3  hours,  the  standard  cost  being  $.52. 

Solution 
INDIVIDUAL  WORKMAN'S  TIME  RECORD  SHEET 

Workman,  Samuel  Lane  No.  of  Machine,  156 

Two  weeks  ending  Jan.  19,  1917 


Order  No. 

Parts 
Made 

Elapsed 
Time 

Rate 
per  Hour 

Amount 

Standard 
Cost 

Balance 

Owing  Him 

He  Owes 

4,000 
4,009 
4,100 
4,100 
4,115 

Employee's  D 

20 
22 
1 

8 
2M 

eficit 

H.  M. 

20  15 
37  30 
1  15 
22  38 
3  00 

$.26 
.28 
.28 
.28 
.28 

$5.27 
10.50 
.35 
6.34 
.84 

$5.20 

11.12 
.60 
4.37 
.52 

$.07 

$.62 
.25 

1.97 
.32 

$23.30 

$21.81 
1.49 

$.87 
1.49 

$2.36 

$23.30 

$23.30 

$2.36 

$2.36 

Problem  59 

Design  a  workman's  efficiency  record  suitable  for  figuring 
his  loss  or  gain  in  actual  time  as  compared  with  the  standard 
allowance  and  make  the  necessary  entries  to  record  the  follow- 
ing information  for  the  week  ended  Jan.  27,  1917 : 


196 


PROBLEMS  IN  COST  ACCOUNTING 


Workman  John  Lee,  on  Order  No.  1,000,  using  Machine 
No.  100,  made  40  parts  in  10  hours,  his  rate  being 
$.20  per  hour,  and  the  standard  cost  $2.05. 

On  Order  No.  1,050,  using  the  same  machine,  he  made  13 
parts  in  5  hours,  his  rate  being  increased  to  $.22;  the 
standard  cost  was  $1.00. 

On  Order  No.  1,200,  using  the  same  machine,  he  made  50 
parts  in  12  hours,  his  rate  being  again  increased  to 
$.24;  the  standard  cost  for  the  job  was  $2.75. 

On  Order  No.  1,400,  using  the  same  machine,  he  made  25 
parts  in  6  hours,  his  rate  being  again  raised  to  $.26 
an  hour;  the  standard  cost  was  $1.50. 

PERCENTAGE  OF  EFFICIENCY 

In  the  weave  room  of  a  textile  mill  the  percentage  of  ef- 
ficiency is  found  by  dividing  the  actual  yardage  by  the  100  per 
cent  yardage.  The  following  report  gives  the  weekly  produc- 
tion in  a  cotton  weave  room.  The  first  column  is  for  the  con- 
struction of  the  cloth ;  width,  yards  per  pound,  ends  and  picks 
per  inch.  The  other  columns  are  arranged  for  the  record  of  the 
style  number,  number  of  looms  running,  number  of  looms  idle 
and  cause,  number  of  cuts  woven  for  the  week,  and  yards  of 
cloth  woven  per  loom. 

WEAVE  ROOM  REPORT 
Week  ending  Jan.  8,  1917 


Construction  of  Fabric 

Kind  of 
Goods 

Looms 
Run 

Stopped 

No.  of 
Cuts 

Yards  Per 
Loom 

37  in.    4.80    46  X  56 

OOB 

380 

1,739 

274 

36  in.    4.10    50X56 

BD1 

81 

364 

269 

30  in.    5.20    46X48 

BO 

398 

10 

2,162 

317 

31  in.    2.40    72X60 

BT 

331 

1,390 

252 

1,190 

5,655 

COSTS  197 

The  number  of  yards  corresponding  to  a  production  of  100 
per  cent  is  calculated  for  each  style  from  the  picks  per  inch, 
speed  of  looms,  and  working  hours  per  week. 

Example. — Part  1. — What  is  the  100  per  cent  production  for 
style  BT  woven  with  60  picks  per  inch  on  looms  running  160 
picks  per  minute  for  60  hours  per  week  ? 

Part  2. — What  is  the  actual  production  per  loom  for  style 
BT,  where  331  looms  turned  off  1,390  cuts,  the  average  length 
being  60  yards  per  cut  ? 

The  actual  production  per  loom  for  the  week  is  calculated 
from  the  number  of  looms,  number  of  cuts  and  yards  per 
cut. 

Part  3. — WThat  is  the  percentage  of  efficiency  on  style  BT  ? 

The  percentage  of  efficiency  is  equal  to  the  actual  produc- 
tion divided  by  the  100  per  cent  production. 

Solution 
Part  1. — 100  per  cent  Production. 

Picks  per  inch,  60 

Picks  per  minute,  160 

160  -T-  60  =  2 . 66%  inches  per  minute 

2.66%  X  60  (minutes)  X  (60  hours) 


36  (inches  per  yard) 


=  266%  yards  per  loom  per  week 


Solution 
Part  2. — Actual  Production. 

Number  of  cuts,  1,390 

Average  length,  60  yards 

1,390  X  60  =  83,400  total  yardage 

Number  of  looms,  331 

83j400  -f-  331  =  252  yards  produced  per  loom  per  week 


198          PROBLEMS  IN  COST  ACCOUNTING 

Solution 
Part  3. — Percentage  of  Efficiency. 

100  per  cent  production,  266%  yards 

Actual  production,  252  yards 

252  -^  266%  =  94 . 5  percentage  of  efficiency  for  looms  on  style  BT 

Problem  60 

Part  1. — What  is  the  100  per  cent  production  for  style  BD1 
woven  with  56  picks  per  inch  on  looms  running  160  picks  per 
minute  for  60  hours  per  week  ? 

Answer.  — 285.71  yards  per  loom  per  week. 

Part  2. — What  is  the  actual  production  per  loom  for  style 
BD1,  where  81  looms  turned  off  364  cuts,  the  average  length 
being  60  yards  per  cut  ? 

Answer. — 269  yards  produced  per  loom  per  week. 

Part  3. — What  is  the  percentage  of  efficiency  on  style  BD1  ? 

Answer. — 94.1  percentage  of  efficiency  for  looms  on  style 
BD1. 

MACHINE  TABULATED  RECORDS 

The  question  frequently  arises  as  to  the  best  means  of 
handling  a  large  volume  of  detail  in  connection  with  the  opera- 
tion of  a  cost  system.  In  plants  of  considerable  size  it  is  often 
found  advantageous  to  introduce  machine  tabulated  records. 
The  system  is  operated  by  using  what  are  known  as  punched 
cards,  upon  which  the  information  to  be  tabulated  is  recorded 
by  means  of  holes  like  those  in  a  Jacquard  loom  card  or  the 
paper  roll  in  a  player  piano.  The  holes  have  to  be  punched  in 
accordance  with  a  prearranged  code  by  which  the  cards  are 
sorted  and  tabulated.  The  following  example  will  show  the 
method  of  making  the  punched  card  record. 

Example. — Design  a  tabulating  machine  punch  card  for 
use  on  either  a  Hollerith  or  Powers  machine,  suitable  for  re- 


COSTS 


199 


cording  the  following  information  regarding  an  item  issued 
from  stores  by  the  stockkeeper  on  a  requisition : 


Date 

Requisi- 
tion 
Number 

Article 

Charge 
Account 

Quan- 
tity 

Unit 

Price 

Amount 

Main  Clas- 
sification 

Sub.    Clas- 
sification 

00000 

11111 

22222 
33333 
Etc  ,  etc 

00000 
11111 
22222 
33333 

00000 
11111 
22222 
33333 

000 
111 
222 
333 

000000 
111111 
222222 
333333 

00000 
11111 
22222 
33333 

0000 
1111 
2222 
3333 

00000 
11111 
22222 
33333 

0000000 
1111111 
2222222 
3333333 

Make  the  necessary  marks  to  show  how  a  card  would  be 
punched  to  record  the  following  information  regarding  6  spark 
plugs  issued  from  stores  for  a  7-passenger  Cadillac  touring  car. 

REPORT  OF  STORES  ISSUED 

Date, Jan.  3,  1917 

Requisition  No.  175 

Article  Classification 7,215 .325 


Charge  Account . 

Quantity 

Unity 

Price 

Amount . . 


32.122 

6 

5 

$2.50 

$15.00 


The  solution  to  this  example  is  presented  in  Exhibit  35. 

Problem  61 

^Design  a  tabulating  machine  punch  card  suitable  for  use  on 
either  a  Hollerith  or  a  Powers  machine.  The  following  infor- 
mation regarding  invoices  is  to  be  provided  for: 


Year 

Month 

Day 

Vouch- 
er 
Num- 
ber 

Ven- 
dor 
Num- 
ber 

Charge 
Ac- 
count 

Main 

Classifi- 
cation 

Sub- 
Classifi- 
cation 

Quan- 
tity 

Unit 

Price 

Amount 

00 
11 
22 
33 
Etc., 

0 
1 
2 
3 

00 
11 
22 
33 

00000 
11111 
22222 
33333 

0000 
1111 
2222 
3333 

0000 
1111 
2222 
3333 

0000 

1111 

2222 
3333 

0000 
1111 
2222 
3333 

00000 
11111 
22222 
33333 

000 
111 
222 
333 

00000 
11111 
22222 
33333 

0000000 
1111111 
2222222 
3333333 

STORES      ISSUED         PUNCH       CARD. 


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COSTS  201 

]\Iake  the  proper  marks  (•)  on  the  punched  card  form  to 
record  the  following  information  regarding  an  invoice: 

Date, Jan.  7,  1917 

Voucher  No . . '. 12344 

Vendor  No 2211 

Charge  Account 1135 

Main  Classification 4421 

Subclassification 2212 

Quantity 10,000 

Unit 5 

Price $1.25 

Amount $12,500.00 


GRAPHIC    CHARTS 
Problem  62 

Part  1. — Make  a  graphic  chart  to  show  the  standard  cost  of 
production  corresponding  to  different  rates  of  output  in  a  steel 
rolling  mill  from  the  following  data: 

Monthly 

Production  of  Operating  Cost 

Rolled  Plate  per  Ton 

in  Tons 


$5.85 
4.65 
4.05 
3.69 
3.45 
3.27 
3.15 


Part  2. — Make  a  graphic  chart  showing  the  monthly  tonnage 
produced  in  a  steel  rolling  mill,  and  the  operating  cost  per  ton 
from  the  following  data : 


202 


PROBLEMS  IN  COST  ACCOUNTING 


1916 


Monthly 

Production  of 

Rolled  Plate 

in  Tons 


Operating  Cost 
per  Ton 


January 3,000 

February 2,500 

March 2,200 

April 1,800 

May 2,000 

June 1,500 

July 2,300 

August 3,000 

September 3,200 

October 1,800 

November 2,000 

December 4,000 


1.45 
69 


.25 

.05 

.65 

3.81 

3.45 

3.37 

4.25 

4.05 


3.15 


Let  a  unit  on  the  vertical  scale  equal  100  tons  or  $.10. 


CHAPTER  XII 

APPLICATION  OF  THE  PRINCIPLES  OF  COST  FINDING 

IN  THE  LEATHER,  KNIT  GOODS,  CORDAGE,  TEX- 

TILE  FINISHING  AND  COTTON  YARN 

INDUSTRIES 

In  order  to  illustrate  the  practical  application  of  cost  ac- 
counting, reference  will  be  made  to  the  methods  of  cost  finding 
in  the  leather  and  various  divisions  of  the  textile  industry.  The 
leather  industry  presents  the  problem  of  finding  the  cost  of  a 
commodity  which  is  being  continually  produced,  and  which  re- 
quires exact  records  of  yield  and  by-products,  in  order  that  costs 
may  be  determined  correctly.  The  textile  industry  presents 
many  problems  in  its  various  branches.  There  are  a  number  of 
cost-finding  plans  which  have  been  devised  especially  to  meet 
the  requirements  of  knit  goods,  cordage,  finishing,  and  cotton 
yarn  mills.  These  plans  will  be  considered  in  detail  in  this 
part  of  the  book. 

COST  OF  MANUFACTURING  LEATHER 

The  principal  products  of  the  tanning  industry  are  sole  and 
upper  shoe  leather.  The  material  used  in  the  manufacture  of 
sole  leather  consists  of  raw  hides  of  bulls,  heavy  steers,  or  very 
old  cattle,  tanning  materials  and  water  for  the  soaking  pits. 
The  materials  used  in  making  upper  leather  are  raw  hides,  such 
as  calf  skins,  tanning  materials  and  water. 

SOLE  LEATHER  COST  FORMULA 

From  the  original  cost  of  the  raw  hides  the  income  from 
the  sale  of  offal  (hair,  dirt,  grease)  is  deducted  in  order  to 

203 


204 

obtain  the  net  cost  of  hides  used.     The  complete  cost  formula 
for  sole  leather  may  be  stated  as  follows : 

1.  RAW  HIDES  USED 

A.  Gross  Cost: 

(1)  Number  of  hides 

(2)  Weight 

(3)  Cost,  including  freight 

B.  Deductions,  Income  from  the  sale  of: 

(1)  Offal 

(2)  Trimmings,  cuttings,  etc.,  from  hide  house  sold 

for  glue  stock 

(3)  Hair  and  fleshings  from  beam  house 

(4)  Refuse  sold  for  fertilizer 

(5)  Grease 

C.  Net  Cost  of  Raw  Hides  Used  =  A  -  B 

2.  TANNING  MATERIALS  USED 

A.    Quantity  and  Cost  of: 

(1)  Bark 

(2)  Extract 

(3)  Chemicals 

(4)  Finishing  materials 

3.  WATER  USED  IN  SOAKING  PITS 

Material  Cost  =1  +  2  +  3 


LABOR  COST       , 

The  labor  cost  covers  the  work  done  in  transforming  the 
raw  hides  into  the  finished  leather.  Labor  is  generally  classi- 
fied, somewhat  as  follows : 

Superintendent. 

Overseer,  beamhouse. 

Overseer,  tan  yard. 

Overseer,  finishing. 

Beamsters. 

Fleshing  machine  operators. 

Tan  yard  handlers. 


COSTS  205 ; 


Floor  hands. 
Yard  hands. 
Finishers. 
Time  keeper. 
Clerk. 


INDIRECT  EXPENSE  COST 


Administration. 

Supplies. 

Repairs. 

Sundry  purchases. 

Depreciation. 

Insurance. 

Taxes. 


TOTAL  COST 


The  total  cost  of  the  sole  leather  is  equal  to  the  sum  of  the 
material  cost,  the  labor  cost  and  the  indirect  expense.  Manu- 
facturers of  sole  leather  are  interested  in  the  yield  of  finished 
product  which  is  obtained  from  the  raw  hides.  The  yield  is 
given  as  the  number  of  pounds  of  sole  leather  ^ obtained  from 
100  pounds  of  raw  hides. 

UPPER  LEATHER  COST  FORMULA^ 

The  split  leather  problem  is  encountered  in  figuring  the 
costs  in  an  upper-leather  tannery.  Grain  leather  is  that  from 
the  side  of  the  hide  on  which  the  hair  grows,  while  the  split 
leather  comes  from  the  opposite  or  flesh  side.  Splits  are  taken 
off  for  the  purpose  of  reducing  the  hair  side  to  a  uniform  thick- 
ness. If  a  hide  is  thick  the  split  is  oftentimes  heavier  than 
the  grain  side,  and  so  becomes  of  value  for  further  manufac- 
ture. However,  the  purpose  of  tanning  skins  is  to  produce 


206 

grain  leather  and  not  splits,  and  consequently  the  splits  are 
regarded  as  mere  by-products.  Whatever  is  gained  clear  as  the 
result  of  producing  them  is  simply  deducted  from  the  cost  of 
the  original  raw  hides.  Hides  are  the  same  price  whether  splits 
result  or  not.  The  plan  devised  for  handling  this  split  leather 
problem  is  to  consider  the  raw  hide  material  used  in  the  splits 
as  not  costing  anything.  The  method  of  procedure  is  to  charge 
all  manufacturing  costs  up  to  and  through  the  splitting  room, 
to  grain  leather.  After  that  there  are  two  pieces  of  leather  to 
be  considered  which  undergo  different  treatment  in  subsequent 
operations  and  which  have  a  different  market  value  when  fin- 
ished. All  expense  incurred  in  manufacturing  the  split  into  a 
salable  product  is  chargeable  against  the  cost  of  producing  split 
leather.  The  profit  on  split  leather  is  found  by  deducting  the 
cost  of  production  from  the  sales  and  then  the  difference  is  set 
down  as  an  offset  to  the  raw  hide  cost.  The  complete  cost  for- 
mula used  in  figuring  the  cost  of  upper  leather  may  be  expressed 
as  follows: 

1.    RAW  HIDES  USED 

A.  Gross  Cost 

(1)  Number  of  hides   • 

(2)  Weight 

(3)  Cost,  including  freight 

B.  Deductions,  Income  from  the  sale  of: 

(1)  Offal,  trimmings,  cuttings  and  refuse  from  the 

hide  house 

(2)  Hair  and  fleshings  from  the  beam  house 

(3)  Small  pieces  which  aie  split  off  from  the  grain 

side  and  sold  for  glue  stock 

(4)  Refuse  and  shavings  from  the  various  dressing 

operations,  generally  sold  for  fertilizer 

C.  Profit  on  Split  Leather 

(1)  Sales 

(2)  Less  cost  of  manufacture 

(3)  Net  profit 

D.  Net  Cost  of  Raw  Hides  Used  =  A  -  (B  +  C) 


COSTS  207 

2.  TANNING  MATERIALS  USED 

A.    Quantity  and  cost  of: 

(1)  Bark 

(2)  Extract 

(3)  Chemicals  » 

(4)  Finishing  materials 

3.  WATER  USED  IN  SOAKING  PITS 

Material  Cost  =  1  +  2  +  3 

LABOR  COST 

The  labor  cost  covers  the  work  which  is  done  in  the  follow- 
ing departments  in  transforming  the  raw  skins  into  the  finished 
product. 

Hide  house. 

Soaking  pits. 

Beam  house. 

Tan  yard. 

Splitting,  shaving. 

Coloring  fat  liquoring. 

Washing,  oil  and  dry  room. 

Staking. 

Tacking. 

Finishing. 

Measuring  and  sorting. 

Packing  and  shipping. 

INDIRECT  EXPENSE 

The  indirect  expense  in  an  upper  leather  tannery  covers 
such  items  as  are  neither  classified  as  material  nor  labor. 

TOTAL  COST 

The  total  cost  of  upper  leather  is  equal  to  the  cost  of  ma- 
terial, labor  and  indirect  expense. 


PROBLEMS  IN  COST  ACCOUNTING 


It  is  the  practice  in  the  leather  trade  to  sell  sole  leather  by 
the  pound  and  upper  leather  by  the  square  foot.  This  practice 
requires  that  pounds  be  used  as  the  unit  of  measure  in  figur- 
ing sole  leather  costs  and  that  square  feet  be  used  as  the  basis 
for  stating  the  cost  of  upper  leather. 

COST   CALCULATIONS 

The  method  of  calculating  costs  in  the  leather  industry  will 
readily  be  understood  from  the  following  examples. 
A.    Sole  Leather  Costs 

Example. — From  the  following  information,  which  was 
obtained  from  the  books  of  the  A.  B.  Co.,  ascertain  the  cost  per 
pound  for  producing  oak  tanned  sole  leather: 

1  Number  of  green  hides  used,  3,125 

2  Average  weight  of  green  hides,  40  pounds 

3  Cost  of  green  hides  per  pound,  $ .  16 

4  Sales  of  offal  equal  1^  per  cent  of  cost  of  raw  hides 

5  Estimated  yield  is  80  pounds  of  oak  sole  leather  for  each  100  pounds 

of  green  hides 

6  Tanning  materials  estimated  at  $3 . 00  per  100  pounds  of  finished 

leather 

7  Water  used  in  soaking  pits  estimated  at  $.20  per  100  pounds  of 

finished  leather 

8  The  direct  labor  and  indirect  expense  were  as  follows : 


Department 

Direct  Labor 

Indirect  Expense 

Hide  House  

$402.90 

$750.00 

Soaking  Pits  

191.10 

105.00 

Beam  House  

1,170  20 

1,120.00 

Pickling  ...... 

155  80 

450  00 

Tanning;  .  .  .  .'  ;  

785.20 

310.00 

Staking  

270  50 

125.00 

Finishing  .    . 

1,252  00 

290.00 

Sorting,  Packing  and  Shipping  

346.60 

280.20 

$4,574.30 

$3,430.20 

PRINCIPLES  OF  COST  FINDING 


209 


Solution 

1  Number  of  hides,  3,125 

2  Average  weight  of  green  hides,  40  Ibs.  each 
Total  weight  of  hides  purchased,  125,000  Ibs. 

3  Cost  of  green  hides  per  pound,  $ .  16 

Total  cost  of  green  hides  purchased,  $20,000 .00 

4  Sales  of  offal  equal  1^%  of  cost  of  raw  hides 

Sales  of  offal  equal  $300.00 

5  Estimated  yield  is  80  pounds  of  oak  sole  leather  for  each  100 

pounds  of  green  hides 

Estimated  yield  80%  of  125,000  Ibs.,  100,000  Ibs. 

6  Tanning  materials  estimated  at  $3.00  per  100  Ibs.  of  finished 

sole  leather 

Tanning  materials,  $.03  X  10,000  Ibs.,  $300.00 

7  Water  used  in  soaking  pits  estimated  at  $ .  20  per  100  Ibs.  of  finished 

sole  leather 

Water  equals  $.002  X  10,000  Ibs.,  $20.00 

8  The  direct  labor  and  indirect  expense  was  as  follows  by  depart- 

ments : 


Departments 

Direct  Labor 

Indirect  Expense 

Hide  House  

$402.90 

$750.00 

Soaking  Pits  

191.10 

105.00 

Beam  House  

1,170.20 

1,120.00 

Pickling  

155.80 

450.00 

Tanning  

785  20 

310.00 

Staking  

270.50 

125.00 

Finishing  

1,252.00 

290.00 

Sorting,  Packing  and  Shipping  

346.60 

280.20 

Total   

$4,574.30 

$3,430.20 

Est.  yield,  100,000  Ibs. 
Cost  per  100  Ibs  

$4.57 

$3.43 

RECAPITULATION 

Cost  of  125,000  Ibs.  green  hides  at  $16 $20,000.00 

Deduct  s  ales  of  offal . .  300 . 00 


Net  cost  of  green  hides $19,700.00 


210 

Forward:  $19,700.00 

Tanning  materials   300 . 00 

Water..  20.00 


Cost  of  materials $20,020.00 

Cost  of  Direct  Labor 4,574.30 

Cost  of  Indirect  Expense 3,430.20 

$28,024.50 
Cost  per  pound,  $.28 

B.    Upper  Leather  Costs 

Example. — From  the  following  information  ascertain  the 
cost  per  square  foot  for  producing  upper  leather  from  calf  skins : 

(a)  Grain  Leather 

1  Number  of  calf  skins  used,  7,680 

2  Average  yield  per  calf  skin,  10  sq.  ft. 

3  Cost  of  calf  skins  per  square  foot,  $ .  15 

4  Tanning  supplies  estimated  at  $1 . 50  per  100  sq.  ft. 

5  Water  used  in  soak  pits,  $ .  05  per  100  sq.  ft. 

6  Direct  Labor,  $2.00  per  100  sq.  ft. 

7  Indirect  expense,  $1 . 00  per  100  sq.  ft. 

(b)  By-products 

I  Split  Leather 

1  Number  of  splits  produced,  2,250 

2  Average  yield  per  split,  4  square  feet 

3  Tanning  supplies,  estimated  at  $1 . 25  per  100  sq.  ft. 

4  Water  used  in  soaking,  $ .  05  per  100  sq.  ft. 

5  Direct  labor,  $.95  per  100  sq.  ft. 

6  Indirect  expense,  $ .  50  per  2 . 75  =  $247 . 50 

7  Split  leather  sold  for  $ .  13^  sq.  ft. 

II  Sales  of  waste,  grease,  hair,  etc.  $500 . 00 

Solution 

UPPEK  LEATHER 
(a)    Grain  Leather 

1  Number  of  calf  skins  used,  7,680 

2  Average  yield  per  calf  skin,  10  sq.  ft. 

Total  number  of  sq.  ft.  purchased,  76,800 

3  Cost  per  square  foot,  $ .  15 

Cost  of  calf  skin  $11,520.00 

4  Tanning  materials  used,  $1,152.00 

5  Water  used  in  soaking  pits,  $38 . 40 


COSTS  211 

6  Direct  labor,  $1,536.00 

7  Indirect  expense,  $768 . 00 
(b)    By-products 

I  Split  Leather 

1  Number  of  splits  produced,  2,250 

2  Average  yield  per  split,  4  sq.  ft. 

Total  number  of  sq.  ft.,  9,000  sq.  ft. 

3  Tanning  materials  used,  $112.50 

4  Water  used  in  soaking  pits,  $4 . 50 

5  Direct  labor,  $85.50 

6  Indirect  expense,  $45 . 00 

7  Split  leather  sold  for  $ .  13^  per  square  foot 
Split  leather  sales,  $1,215.00 

Deduct  cost  of  mfg.,  $247.50  ($112.50  +  $4.50  -t- 
$85. 50 +  $45. 00) 
Profits  on  splits,  $967.50 

II  Sales  of  waste,  grease,  hair,  $500 . 00 

RECAPITULATION 

Material  cost $11,520.00 

Deduct: 

Sale  of  offal $500.00 

Profit  on  splits 967.50       1,467.50 

$10,052.50 

Tanning  materials 1,152 . 00 

Water..  38.40 


Material $11,242.90 

Direct  labor 1,536.00 

Indirect  Expense 768.00 

$13,546.90 
Cost  per  sq.  ft.,  $.1763 

Problem  63 
A.  Sole  Leather  Costs 

From  the  following  information  which  was  obtained  from 
the  books  of  the  C.  D.  Co.,  ascertain  the  cost  per  pound  for 
producing  oak  tanned  sole  leather: 

1  Number  of  green  hides  used,  4,120 

2  Average  weight  of  green  hides,  40  pounds 


212          PROBLEMS  IN  COST  ACCOUNTING 

5    Cost  of  green  hides  per  pound,  $ .  18 

4  Sales  of  effal  equal  1%  per  cent  of  cost  of  raw  hides 

5  Estimated  yield  is  80  pounds  of  oak  sole  leather  for  each 

100  pounds  of  green  hides 

6  Tanning  materials  estimated  at  S3. 25  per  100  pounds 

of  finished  leather 

7  Water  used  in  soaking  pits  estimated  at  $.10  per  100 

pounds  of  finished  leather 

8  The  direct  labor  was  $5,500 . 00  and  the  indirect  expense, 

$4,750.00 

B.    Upper  Leather  Costs 

From  the  following  information  figure  the  cost  per  square 
foot  for  producing  upper  leather  from  calf  skins : 

(a)  Grain  Leather 

1  Number  of  calf  skins  used,  10,500 

2  Average  yield  per  calf  skin,  10  sq.  ft. 

3  Cost  of  calf  skins  per  square  foot,  $ .  16 

4  Tanning  materials  used,  $1,500.00 

5  Water  used  in  soaking  pits,  $30.00 

6  Direct  labor,  $2,100.00 

7  Indirect  expense,  $1,200.00 

(b)  By-products 

I  Split  Leather 

1  Number  of  splits  produced,  3,100 

2  Average  yield  per  split,  4^  square  feet 

3  Tanning  materials  used,  $150.00 

4  Water  used  in  soaking  pits,  $3 . 75 

5  Direct  labor,  $110.00 

6  Indirect  expense,  $65 . 00 

7  Split  leather  sold  for  $.14  per  sq.  ft. 

II  Sales  of  waste,  grease,  hair,  etc.,  $700.00 

COST  OF  MANUFACTURING  KNIT  GOODS 

In  the  manufacture  of  knit  goods  it  is  necessary  to  arrive 
at  the  cost  of  production  by  making  an  analysis  of  each  style 
produced.  This  can  be  done  by  unraveling  a  finished  piece  of 
underwear  or  a  hose  and  weighing  each  kind  of  yarn  used. 
Then  an  allowance  has  to  be  made  to  cover  the  loss  due  to 
waste.  Inasmuch  as  the  product  is  all  produced  on  knitting 


COSTS 


213 


machines,  the  overhead  expense  can  be  handled  by  arriving  at 
the  cost  per  week  per  machine  and  then  at  the  cost  per  dozen 
pair,  based  on  the  weekly  production.  Piece  work  prevails  in 
the  knitting  industry  and  therefore  no  difficulty  is  experienced 
in  figuring  the  labor.  An  allowance  has  to  be  made  for  boxes 
and  boxing  as  well  as  dyeing  and  loss  due  to  the  production  of 
seconds.  The  following  example  illustrates  the  method  of  cal- 
culation. 

Example. — What  is  the  cost  of  manufacture  of  three  grades 
of  half  hose  known  as  A,  B  and  C,  which  are  made  as  follows : 


A 

B 

c 

Needles  in  cylinder  

200 

220 

240 

Rib  top  

2/26 

2/36 

2/36 

Lee.  . 

2/26 

2/60 

2/70 

Heel  and  toe  

2/26  &  2/60 

2/40  &  2/60 

2/50  &  2/70 

High  splice  

1/50 

2/100 

Advanced  toe  

1/50  &  2/60 

2/100  &  2/70 

Weight  per  dozen  

1.251b. 

.9381b. 

.8441b. 

The  weight  is  given  in  decimal  parts  of  a  pound  in  order 
to  facilitate  the  calculation  of  the  cost  of  yarn  per  dozen  from 
the  proportions  and  prices  of  the  different  yarns.  From  the 
following  data  calculate  the  yarn  cost  for  styles  A,  B  and  C, 
allowing  12  per  cent  for  waste. 

Style  A 

.067  Ib.  2/60s  @    $.55 
1.1831b.  2/26s  @      .82 

1.2501bs. 

Style  B 

.10    Ib.  l/50s  @$1.00 
.10    Ib.  2/40s  @      .086 
.4631b.  2/60s  @    1.16 
.2751b.  2/36s  @      .80 

.938  Ib. 


214          PROBLEMS  IN  COST  ACCOUNTING 

Style  C 

.1251b.  2/100s  @$1.75 
.09  Ib.  2/50s  ©  1.05 
.29  Ib.  2/36s  @  .80 
.3391b.  2/70s  @  1.20 


.8441b. 

Having  found  the  cost  of  the  yarn  per  dozen  pairs  of 
stockings,  the  next  step  in  the  process  is  to  determine  the  cost 
of  manufacturing,  which  for  the  purpose  of  cost  rinding  is 
divided  into  overhead  and  wages  paid  for  piece  work. 

From  the  following  record  of  factory  overhead  kept  in  a 
mill  operating  200  machines  on  the  three  grades  of  hosiery, 
A,  B  and  C,  already  described,  find  the  overhead  expense  per 
machine  per  week.  The  overhead  expense  covers  both  indirect 
labor  which  is  obtained  from  the  pay  roll  analysis  and  the  indi- 
rect expense,  comprising  fixed  charges  and  sundry  purchases. 

INDIRECT  LABOR 

One  Year 

Treasurer $3,500 

Superintendent 2,250 

Bookkeeper 1,200 

Overseer  of  knitting 1,456 

Six  fixers 6,552 

Six  spare  boys 2,496 

Fireman 780 

Engineer 1,092 

Watchman 910 

Shipping  clerk 936 

Packing  clerk 936 

Laborer 572 

Machinist 1,040 

Six  inspectors 2,808 

Overseer  of  mending 624 

Extra  man . .  832 


Total  Indirect  Labor $27,984 


COSTS  215 

INDIRECT  EXPENSE 

Depreciation $5,000 

Interest 5,000 

Taxes 1,600 

Insurance 300 

Advertising 2,000 

Fuel 3,750 

Freight 1,500 

Supplies 750 

Repairs 1,500 

Needles .  .  800 


Total  Indirect  Expense $22,200 

The  production  of  a  hosiery  knitting  machine,  which  meas- 
ures the  production  of  the  mill,  cannot  be  calculated,  as  in  the 
case  of  underwear,  from  the  number  of  ends,  counts  and  speeds 
of  the  yarn  entering  the  machine,  but  must  be  found  by  actual 
test  of  one  or  more  machines  running  on  the  style  in  question. 
From  the  following  test,  which  shows  the  production  on  Styles 
A,  B  and  C,  calculate  the  overhead  expense  per  dozen  pair: 

Style  A,  30  dozen  per  machine  per  week 
Style  B,  26      "       "         "          "      u 
Style  C,  22      «       "  u      u 

The  remaining  items  of  cost  consist  of  the  prices  paid  for 
piece  work.  These  vary  with  the  different  mills  and  kind  of 
goods.  For  Style  A,  the  piece-work  operations  are  as  follows: 

PER  DOZEN  PAIR 

Knitting  rib  top $ .  005 

Cutting  rib  top .005 

Topping  rib  top .07 

Transferring .045 

Looping .06 

Turning 005 

Mending 03 


216          PROBLEMS  IN  COST  ACCOUNTING 

Turning  2d  time $  .005 

Turning  3d  time .01 

Boarding 02 

Pressing .01 

Mating 02 

Stamping .  005 

Ticketing .005 

Folding 01 


$.305 

In  addition  to  labor  and  supplies,  there  are  expended  on 
Style  A  as  follows : 

PEE  DOZEN  PAIR 

Box  and  Boxing $ .  05 

Dyeing .06 

The  piece  work  on  Style  A  is  $.305  per  dozen  pair.  As 
Styles  B  and  C  are  made  on  220-  and  240-needle  machines, 
the  production  will  be  less  and  a  higher  price  will  have  to  be 
paid  for  topping,  transferring,  looping  and  mending,  making 
the  piece  work  cost  $.34  for  Style  B  and  $.38  for  Style  C. 
With  the  cost  of  dyeing  and  boxing  added,  these  items  amount 
to  $.45  for  Style  B  and  $.49  for  Style  C. 

The  totals  of  Styles  A,  B  and  C  can  now  be  summarized. 

The  result  so  far  obtained  is  the  average  cost  for  the  entire 
product  of  the  mill  including  seconds  as  well  as  firsts.  In 
order  to  eliminate  the  loss  on  seconds  from  the  selling  account 
it  is  a  common  practice  to  allow  for  this  loss  by  adding  it  to 
the  calculated  cost  of  the  goods.  One  method  of  making  this 
allowance  is  illustrated  as  follows: 

On  a  style  of  hosiery  a  mill  is  making,  one  dozen  seconds 
selling  at  $1.10  per  dozen  is  produced  for  every  10  dozen  firsts 
selling  at  $1.60  per  dozen. 

$.50  (loss  on  1  doz.  seconds)  -f-  10  (doz.  firsts)  =  $.05  per  doz. 


COSTS  217 

This  amount  of  $.05  per  dozen  is  added  to  the  average  mill 
cost  as  an  allowance  for  the  loss  on  seconds. 

Solution — Cost  of  Style  A. — The  cost  of  manufacturing 
Style  A  half  hose  is  calculated  as  follows : 

.067  Ib.  2/60s  @$.55 $.03685 

1 . 183  Ib.  2/26s  @    .82 97006 


$1.00691 

In  order  to  allow  for  12  per  cent  waste  it  is  necessary  to 
divide  $1.00691  by  .88  (1.00-12),  which  gives  $1.1442  as  the 
cost  of  the  yarn  in  a  dozen  pairs  of  Style  A  half  hose. 

COST  OF  OVERHEAD 

Indirect  labor,  one  year , $27,984 

Indirect  expense,  one  year 22,200 


Total,  one  year $50,184 

Total,  one  week 965.07 

Number  of  knitting  machines 200 

Cost  per  machine,  one  week $4 . 825 

Production  of  Style  A,  per  week  per  machine.  30  doz. 

Cost  per  pair  for  overhead $ .  1608 

RECAPITULATION 

Cost  per  Dozen  Pairs,  Style  A,  Hah*  Hose 

Cost  of  material $1 . 1442 

Overhead 1608 

Direct  labor 3050 

Box  and  boxing 0500 

Dyeing 0600 

Allowance  for  seconds . .  .  0500 


Total  cost  per  doz.  pairs,  Style  A,  half  hose .  $1 . 7700 

The  calculation  of  the  cost  of  Styles  B  and  C  is  made  in  a 
similar  manner. 


218          PROBLEMS  IN  COST  ACCOUNTING 

Problem  64 

Calculate  the  cost  per  dozen  pairs  for  producing  Styles  B 
and  C,  half  hose. 

COST  OF  MANUFACTURING  CORDAGE 

After  the  books  in  a  cordage  factory  have  been  closed  it 
is  necessary  to  prepare  an  analysis  of  the  cost  of  production. 
The  best  practice  is  to  departmentalize  the  costs  on  the  general 
ledger  by  opening  one  account  called  Dept.  A — Manufactur- 
ing Yarn  Account,  for  the  purpose  of  controlling  the  cost  of 
yarn,  and  another  account  called  Dept.  B — Manufacturing  Rope 
Account,  for  the  purpose  of  controlling  the  cost  of  rope.  Addi- 
tional manufacturing  accounts  may  be  opened  if  the  size  of  the 
plant  and  the  variety  of  the  products  warrant  it. 

The  long  vegetable  fibers  of  commerce  known  as  hemp,  jute, 
flax,  ramie,  rhea  or  China  grass  are  used  for  the  purpose  of 
making  cordage. 

DEFINITIONS 

Rope  is  cordage  with  a  diameter  of  more  than  one  inch. 
Smaller  cordage  is  known  as  cord,  twine  and  line. 

Hawser — laid  rope — is  composed  of  a  number  of  strands 
laid  or  twisted  together. 

Cable — laid  rope — is  made  of  three  hawsers  laid  or  twisted 
together. 

Shroud — laid  rope — is  usually  made  of  four  strands  laid 
or  twisted  together  around  a  middle  strand  or  core. 

MANUFACTURING  OPERATIONS 

Roughing. — After  opening  the  bales  and  softening  the  fiber 
the  sticks  of  hemp,  jute  or  flax  are  divided  up  into  convenient 
bunches  in  the  roughing  shop  to  undergo  the  hackling  opera- 
tion and  are  then  sent  to  the  machine  room. 


COSTS  219 

Hackling. — The  bunches  of  fiber  are  placed  in  the  hackling 
machine,  where  the  action  of  the  teeth  pull  and  comb  out  the 
fiber. 

Sorting  (Slivering). — The  combed  out  fiber  is  next  formed 
into  a  sliver  on  spread  boards,  where  it  is  deposited  in  a  can. 
The  sliver  is  a  loose  strand  of  untwisted  fiber  which  is  the  raw 
material  of  the  spinner.  In  the  manufacture  of  hemp  rope 
yarn  the  sliver  goes  directly  to  the  spinner,  without  being  sub- 
jected to  any  intermediate  operations. 

Spinning. — The  next  operations  consist  in  combing,  draw- 
ing, doubling  and  spinning  the  fiber  in  order  to  make  the  yarn 
required  for  cordage. 

Reeling,  Copping  and  Cheesing. — If  the  product  is  sold  as 
yarn  it  is  made  into  skeins  on  reels,  put  into  conical  shaped 
cops,  on  winding  machines,  or  wound  into  bundles  shaped  like 
cheeses. 

Stranding. — The  manufacture  of  rope  requires  that  the  yarn 
be  formed  into  strands  by  means  of  special  winding  machines. 

Rope  Laying  and  Cabling. — The  strands  of  yarn  are  next 
twisted  or  laid  together  to  form  a  hawser — laid  rope.  Ordinar- 
ily a  rope  3  inches  in  circumference  is  composed  of  3  strands, 
each  containing  20  threads  of  yarn.  That^  is,  there  would  be 
60  ends  of  No.  20  yarn.  If  a  cable-laid  rope  is  required,  three 
hawser-laid  ropes  have  to  be  laid  together  or  twisted. 

Numbering  System. — The  system  of  numbering  rope-hemp 
yarns  used  in  making  cordage  is  based  on  the  number  of  ends 
in  one  of  the  three  strands  in  a  rope  3  inches  in  circumference. 
Thus,  if  there  are  18  ends  in  one  strand  the  count  is  18;  if  20, 
the  count  is  20,  and  so  on.  In  a  thousand  feet  of  rope  made 
of  number  18  yarn  there  would  be  3  (strands)  x  18  (threads 
of  hemp  yarn)  x  1,000  ft.  -f-  allowance  of  25%  for  shrinkage. 

The  best  practice  in  the  cordage  industry  is  to  close  the 


220 


PROBLEMS  IN  COST  ACCOUNTING 


books  first  and  then  analyze  the  cost  of  production.  In  order 
that  this  may  be  done  it  is  necessary  to  furnish  the  cost  account- 
ant with  a  statement  of  the  production  of  each  department, 
and  also  an  analysis  of  the  pay  roll.  The  following  example 
will  illustrate  the  procedure. 

Example. — From  the  following  data  calculate  the  cost  of 
producing  cordage.  The  cost  of  yarn  in  Dept.  A  is  to  be 
found  first,  and  then  the  cost  of  making  rope  in  Dept.  B. 
The  cost  per  pound  of  labor  and  overhead  is  to  be  found  sepa- 
rately, without  the  tarring  operation,  as  all  yarn  is  not  tarred. 
The  cost  of  fiber  is  to  be  calculated  by  subtracting  the  value 
of  tow  produced  from  the  cost  of  the  sisal  and  manilla  used. 
The  proper  rate"  to  be  added  to  cover  the  cost  of  tarring  labor, 
overhead  and  material  can  be  shown  separately  from  the  cost 
of  producing  rope. 


Dr. 


Dept.  A. — Manufacturing  Yarn  Acct. 


Cr. 


Inventory  at  beginning  of 
month $2,500 

Fiber  requisitions 

Sisal  @  lie 10,000 

Manilla  @  lie 23,605 

Direct  Labor 

Roughing 75 

Hackling 150 

Sorting 100 

Spinning 500 

Indirect  Expense 

Labor 300 

Supplies 150 

Repairs 100 

Fixed  Charges 150 

Power 125 

$37,755 


Tow  produced  @  2c $1,410 

Inventory  at  close  of  month .    2,500 

Balance,  cost  of  yarn  manu- 
factured (transferred  to 
Dept.  B.  Manufacturing 
Rope  Account) 33,845 


$37,755 


COSTS 


221 


Dr. 


Dept.  B. — Manufacturing. Rope  Acct. 


Cr. 


Inventory  at  beginning  of 

month $3,000 

Yarn  manufactured  in  Dept. 

A 33,845 

Direct  Labor 

Stranding 550 

Rope  Laying 220 

Cabling 0 

Balling  or  Coiling 55 

Tarring 50 

Indirect  Expense 

Labor 250 

Supplies 200 

Repairs 100 

Fixed  Charges 150 

Power 175 

Tar..  175 


$38,770 


Inventory  at  close  of  month .  $3,000 

Balance,  cost  of  rope  manu- 
factured (transferred  to 
finished  goods  account) . . .  35,770 


$38,770 


PRODUCTION  REPORT 
1.    Preparing  and  Spinning 


Yarn 

Number 


Pounds 
Produced 


18     120,000 

20     115,000 


2.    Stranding 


Yam 

Number 


235,000 


Pounds 
Produced 


18  120,000 

20  115,000 


235,000 


222  PROBLEMS  IN  COST  ACCOUNTING 

3.     Rope  Laying 

Size  of  Rope 


Circum. 

Diam. 

oiiu  ui   ism           jTvunua 
Produced 

1" 

iV 

20 

20,000 

2" 

w 

20 

35,000 

3" 

1    • 

20 

60,000 

4" 

iiV 

18 

45,000 

5" 

w 

18 

40,000 

4. 

6" 
RODC 

Coiled 

18 

35,000 
235.000  Dounds 

5.    Rope  Tarred 35,000  pounds 


DEPARTMENTAL,  DIRECT  LABOR  PAY  ROLL  ANALYSIS 


Direct 
Labor 


1. 

Preparing  and  Spinning 

No.  18  Yarn  

$400 

No.  20  Yarn  

425 

t89^ 

2. 

Stranding  Dept 

<PO4U 

JNo.  18  Yarn  

$250 

No.  20  Yarn  

300 

f»Vi 

3. 

Rope  Laying  Dept. 

iJU\f 

Size  of  Rope 

Circum.              Diam. 

i"           A" 

$53 

2"                5A" 

46 

3"              1     " 

53 

4"              1TV 

29 

5"              15A" 

22 

6"              \W 

17 



220 

4. 

Rope  Coiling     

55 

5. 

Tarring  

50 

Total  .  . 

$1,700 

COSTS 


223 


Solution 
ANALYSIS  OF  MANUFACTURING  ACCOUNTS 

Cost  of  fiber 

Sisal $10,000 

Manilla 23,605 

$33,605 
Deduct  tow  produced 1,410 

*  _  _    _     _ 

$32,195 

Weight  of  yarn 235,000  pounds 

Cost  per  pound  for  fiber  in  yarn $ .  137 

Ratio  of 

Direct  Labor  Direct  Expense  to 

Expense  Labor 

Manufacturing  A $825  $825  100% 

Manufacturing  B 87.5  875  100% 


PREPARING  THE  SPINNING 


Yarn 

Number 


18 
20 


Pounds 
Produced 


120,000 
115,000 


235,000 


Direct 
Labor 


$400 
425 


$825 


Burden 


425 


SX25 


Total 
Lpb-r  & 
Burden 


850 


$1,650 


Cost  per 

pound  in 

cents 


.667 
.738 


.702 


RECAPITULATION  DEPT.  A  COSTS 


Yarn  Number 


Cost  per  Pound 
Fiber 


Labor  and 
Overhead 


Total  Cost   of 
Yarn  per  Pound 


18. 
20. 


137 
137 


$.00667 
.00738 


$.14367 
.14438 


224 


PROBLEMS  IN  COST  ACCOUNTING 


STRANDING 


»       Yarn  Number 

Pounds  Produced 

Direct  Labor 

100%  Burden 

Total  Labor 
and  Burden 

Cost  per 
Pound  in 

Cents 

18 

120,000 

$250 

$250 

$500 

.417 

20 

115,000 

300 

300 

500 

.522 

ROPE  LAYING 

The  labor  cost  of  operating  the  rope  laying  department  was 
$220,  and  the  overhead  100  per  cent,  making  a  total  of  $440, 
distributed  as  follows: 


Size  of  Rope 

Circum. 

Diam. 

1" 

TV 

$53 

$53 

$106 

2" 

W 

46 

46 

92 

3" 

1      ' 

53 

53 

106 

4" 

iiV 

29 

29 

58 

5" 

iW 

22 

22 

44 

6* 

M 

17 

17 

34 

$220 

$220 

$440 

The  cost  per  pound  for  rope  laying  is  found  as  follows: 

Size  of  Rope 

Labor  and 
Overhead 

Pounds  of 
Rope  Laid 

Cost  per  Pound 
in  Cents 

Circum. 

Diam. 

r 

TV 

$106 

20,000 

.53 

2" 

w 

92 

35,000 

.262 

3" 

1    * 

106 

60,000 

.177 

4" 

hV 

58 

45,000 

.128 

5" 

i%' 

34 

35,000 

.187 

COSTS 


225 


ROPE  COILING 

The  labor  cost  for  rope  coiling  was  $55,  to  which  100  per 
cent  has  to  be  added  for  overhead,  making  $110. 

$110  +  235,000  =  .0468  cents  per  pound 

TARRING 

The  labor  cost  of  tarring  wasv$50,  to  which  $50  has  to  be 
added  to  cover  the  overhead,  making  $100. 

$100  -J-  35,000  pounds  =  .285  cents  per  pound 
RECAPITULATION  DEPT.  B    COSTS 


Size  of  Rope 

Circum  ................  1"  2"          3"          4"  5 

Diam  .................  &*  %•      1"  lrf»  \ 

Size  of  Yarn  .....  ......  20  20         20  18  18 


6* 
\ 

18 


COST  IN  CENTS 


Stranding 

Rope  Laying . 
Rope  Coiling . 


.522  .522  .522  .417  .417  .417 
.530  .262  .177  .128  .110  .097 
.047  .047  .047  .047  .047  .047 


1.099      .831       .746      .592      .574      .561 
SUMMARY  OF  DEPT.  A  AND  DEPT.  B  COSTS 


Circum.  of 
Rope 

Size  of  Yarn 

Cost  of  Yarn 
per  Pound 

Cost  of  Making 
Rope  per  Pound 

Total  Cost 
per  Pound 

1" 

20 

$.14438 

$.01099 

$.15537 

2" 

20 

.14438 

.00831 

.15269 

3" 

20 

.14438 

.00746 

.15184 

4" 

18 

.14367 

.00592 

.14959 

5" 

18 

.14367 

.00574 

.14941 

6" 

18 

.14367 

.00561 

.14928 

Add  .  285  cents  per  pound  if  rope  is  tarred. 


226 


PROBLEMS  IN  COST  ACCOUNTING 


Problem  65 

From  the  following  data  make  a  calculation  of  the  cost  of 


producing  cordage. 


Schedule  1 


The  following  manufacturing  account  is  taken  from  the  books  of 
the  A.  B.  C.  Cordage  Co.,  and  shows  the  cost  of  producing  yarn  for  the 
month  ending  Jan.  31,  1917. 


Dr. 


Dept.  A. — Manufacturing  Yarn 


Cr. 


Inventory  at  beginning  of 

month 14,500 

Fiber  Requisitions 

Sisal  at  lie.... 35,000 

Manilla  at  lie 3,000 

Direct  Labor: 

Roughing 150 

Hackling 300 

Sorting 200 

Spinning... 600 

Indirect  Expense 

Labor 300 

Supplies 300 

Repairs 100 

Fixed  Charges 250 

Power. .  300 


$45,000 


Tow  produce  at  2c $1,000 

Inventory  at  close  of  month .    4,500 

Balance  Cost  of  yarn  manu- 
factured  39,500 

(transferred  to  Dept.  B. 
Manufacturing  Rope  ac- 
count) 


$45,000 


Schedule  2 

The  following  manufacturing  account  is  taken  from  the  books  of 
the  A.  B.  C.  Cordage  Co.,  and  shows  the  cost  of  producing  rope  for  the 
month  ending  Jan.  31,  1917. 


COSTS 


227 


Dr. 


PRODUCTION  REPORT 
Dept.  B. — Manufacturing  Rope 


Cr. 


Inventory  at  beginning  of 

month $6,000 

Yarn  manufactured  in  Dept. 

A 39,500 

Direct  Labor 

Stranding 450 

Rope  Laying 250 

Cabling 0 

Balling  or  Coiling 100 

Tarring 0 

Indirect  Expense 

Labor 300 

Supplies 100 

Repairs 100 

Fixed  Charges 100 

Power. .  200 


$47,100 


Inventory  at  close  of  month .  $6,000 

Balance  cost  of  rope  manu- 
factured  41,100 

(transferred    to   finished 
goods  account) 


$47,100 


PRODUCTION  REPOBT 


1.    Preparing  and  Spinning 


Yarn 

Number 


Pounds 
Produced 


18  180,000 

20  175,000 


355,000 

2.  Stranding 

18  180,000 

20   175,000 


355,000 


228          PIIOBLEMS  IN  COST  ACCOUNTING 
3.    Rope  Laying 


Size  of  Rope 

Circum. 

Diam. 

1* 

A" 

20 

60,000 

2" 

w 

20 

60,000 

3" 

1   " 

20 

60,000 

4" 

iiV 

18 

60,000 

5" 

iH* 

18 

60,000 

6" 

w 

18 

55,000 

355*000 

4.    Rope  coiled 355,000  pounds 


DEPARTMENTAL,  DIRECT  LABOR  PAY  ROLL  ANALYSIS 


1.    Preparing  and  Spinning 

No.  18  Yarn 

No.  20  Yarn.. 


2.  Stranding  Dept. 


No.  18  Yarn  

$200 

No.  20  yarn  

250 

3.    Rope  Laying  Dept. 

Size  of  Rope 

Circum.                                Diam. 

1"                                              TV 

$55 

2"                              5/s" 

50 

3"                             1     " 

45 

4"                             IT*" 

40 

5'                              15A 

35 

6"                             V/& 

25 

Total.. 

650 
$1,250 


450 


250 
100 

$2,050 


COSTS  229 

COST  OF  SIMPLE  AND  COMBINED  MANUFACTURING 
PROCESSES 

In  factories  which  are  organized  for  carrying  on  certain 
processes  all  the  time  it  is  necessary  to  ascertain  unit  costs  of 
production  as  a  basis  for  fixing  selling  prices.  The  first  step 
is  to  ascertain  the  cost  of  operating  each  manufacturing  de- 
partment, which  can  be  done  by  opening  as  many  cost  accounts 
as  found  necessary  to  meet  the  requirements  of  any  particular 
plant.  In  a  textile  finishing  mill,  for  example,  where  the 
processes  carried  on  are  known  as  dyeing,  bleaching,  mer- 
cerizing and  printing,  it  is  necessary  to  keep  four  manufac- 
turing accounts  for  the  purpose  of  ascertaining  the  costs  in 
each  department.  The  finishing  mill  usually  takes  plain  cotton 
sheeting,  having  64  threads  in  the  warp  and  64  threads  in 
the  filling,  known  as  a  64  square,  in  the  gray  as  it  comes  from 
the  looms  and  converts  it  into  a  salable  product  by  various 
processes.  The  first  step  in  ascertaining  the  unit  cost  of  finish- 
ing a  piece  of  goods  is  to  find  the  cost  per  yard  for  each  process 
carried  on  in  the  plant.  This  can  readily  be  done  by  dividing 
the  cost  of  operating  a  department  by  the  number  of  yards 
finished  in  that  department  for  the  period  under  consideration. 
The  next  step  is  to  compute  the  cost  of  finishing  where  the 
product  undergoes  two  or  more  processes.  This  is  done  by 
adding  together  the  unit  costs  for  each  separate  operation. 
Thus,  the  cost  per  yard  for  finishing  a  fabric  which  was  bleached 
and  then  dyed  would  be  equal  to  the  sum  of  the  costs  of  bleach- 
ing and  dyeing.  Reference  to  the  following  example  will 
illustrate  how  the  calculation  of  the  unit  cost  of  finishing  cloth 
in  a  textile  mill  is  arrived  at.  Under  Part  1,  the  yards  which 
passed  through  each  operation  are  given,  together  with  the  cost 
of  operating  the  various  departments  for  the  period  under  con- 
sideration, Below,  in  Part  2,  the  goods  sold  are  shown  analyzed 


230 


PKOBLEMS  IN  COST  ACCOUNTING 


by  processes  and  combinations  of  processes.  If  the  yards  sold 
under  each  classification  are  multiplied  by  the  number  of  pro- 
cesses, the  yardage  will,  of  course,  be  the  same  as  in  the  first 
part. 

Example. — What  is  the  cdst  of  finishing  plain  cotton  cloth 
per  yard  in  a  mill  having  four  departments  known  as  the  dye- 
ing, bleaching,  mercerizing  and  printing  departments  shown 
below  in  Parts  1  and  2  ?  The  combination  of  processes  through 
which  the  product  passed  and  the  yards  finished  are  given  in 
detail  in  Part  2.  It  is  first  necessary  to  establish  a  rate  per 
yard  finished,  for  each  process,  and  then  extend  the  produc- 
tion at  a  rate  which  covers  all  processes  through  which  it  passed. 

PAST  1 
PRODUCTION  CLASSIFICATION 


Name  of  Department 

Yards  Finished 

Cost  of  Operating 
Department 

Dveine.  . 

2,870,000 

$20,500 

Bleaching  

2,000,000 

17,000 

Mercerizing  

1,320,000 

16,500 

Printing  

1,295,000 

21,000 

PART  2 
SALES  CLASSIFICATION 


Processes  on  Finished  Goods 


Yards 
Finished 


Dyeing 1,900,000 

Bleaching 1,750,000 

Bleaching  and  dyeing 250,000 

Mercerizing 405,000 

Mercerizing  and  dyeing 720,000 

Mercerizing  and  printing 195,000 

Printing ..,.,. 1,100,000 


COSTS 


231 


Solution 

STATEMENT  OF  COST  OF  FINISHING  PLAIN  COTTON  CLOTH  IN  A 
TEXTILE  MILL 

PART  1 


Name  of  Department 

Production 
in  Yarda 

Cost  of 
Operating 
Department 

Cost  per  Yard 

Dyeing  .  . 

2,870,000 

$20,500.00 

$.00714 

Bleaching  

2,000,000 

17,000.00 

.0085 

Mercerizing  

1,320,000 

16,500.00 

.0125 

Printing  

1,295,000 

21,000.00 

.01621 

Total  

7,485,000 

$75,000.00 

$.04435 

PART  2 


Processes  on  Finished  Goods 

Number  of 
Processes 

Yards 
Finished 

Cost  of  Finish- 
ing, per  Yard 

Cost  of 
Sales 

Dveinc  .  , 

1 

1,900,000 

$.00714 

$13,566.00 

Bleaching  

1 

1,750,000 

.0085 

14,875.00 

Bleaching  and  dyeing.  .  .  . 
Mercerizing  

2 
1 

250,000 
405,000 

.01564 
.0125 

3,910.00 
5,062.50 

Mercerizing  and  dyeing  .  . 
Mercerizing  and  printing  . 
Printing  

2 
2 
1 

720,000 
195,000 
1,100,000 

.01964 
.02871 
.01621 

14,140.80 
5,598.45 
17,831.00 

Total  

6,320,000 

$74,983.75 

Problem  66 

What  is  the  cost  of  finishing  plain  cotton  cloth  per  yard  in 
a  mill  where  several  processes  are  carried  on  as  follows :  bleach- 
ing, mercerizing,  dyeing  and  printing?  The  cost  of  operating 
each  department,  together  with  the  production  reported,  is 
given  below: 


232 


PROBLEMS  IN  COST  ACCOUNTING 


PAET  1 
PRODUCTION  CLASSIFICATION 


Name  of  Department 

Yards  Finished 

Cost  of  Operating 
Department 

Bleaching  

7,500,000 

$75000  00 

Mercerizing  

3,250  000 

56875  00 

Dyeing.  . 

4,250,000 

73  750  00 

Printing  

11,000,000 

220,000  00 

PART  2 
SALES  CLASSIFICATION 


Processes 


Yards  Finished 


Bleaching  and  dyeing 1,000,000 

Bleaching,  mercerizing  and  dyeing 2,500,000 

Bleaching  and  printing 4,000,000 

Mercerizing  and  dyeing 750,000 

Printing 7,000,000 


Manufacturers  of  plain  cotton  goods  usually  want  to  know 
the  conversion  cost  of  the  different  numbers  of  yarn  made.  The 
average  number  system  of  figuring  yarn  costs  is  especially  well 
adapted  to  meet  the  needs  of  mills  making  plain  goods.  The 
number  of  cotton  yarn  depends  upon  the  number  of  840-yard 
lengths  in  one  pound.  After  the  average  number  of  840-yard 
hanks  to  a  pound  has  been  determined,  it  is  an  easy  matter  to 
find  the  conversion  cost  of  a  pound  of  the  average  number. 
Then  by  dividing  this  cost  by  the  average  number  the  conver- 
sion cost  of  No.  1  yarn  can  be  obtained.  The  conversion  cost 
of  any  number  of  cotton  yarn  can  then  be  ascertained  by  multi- 


COSTS 


233 


plying  the  number  of  the  yarn  for  which  the  cost  is  wanted  by 
the  conversion  cost  of  a  pound  of  No.  1  yarn. 

The  conversion  cost  has  to  be  computed  separately  for  spin- 
ning, spooling,  twisting,  reeling,  and  warping.  Then  the  total 
conversion  cost  for  any  number  of  yarn  is  found  by  adding  to- 
gether the  cost  of  all  operations  done  on  the  yarn. 

The  following  example  is  given  to  illustrate  the  method  of 
figuring  the  conversion  cost  of  yarn  according  to  the  average 
number  system. 

Example. — (1)  What  was  the  average  number  of  yarn  spun 
in  the  Lowell  Spinning  Co.'s  mill  for  the  month  of  January, 
1917?  The  production  reported  was  as  follows: 

SPINNING  DEPARTMENT  PRODUCTION 

Yam 
No.  Description  Pounds 


24 

Chain  Warp 

10,000 

26 

u 

u 

20,000 

28 

u 

u 

17,000 

30 

u 

u 

40,000 

2/40 

* 

u 

12,000 

50 

Skein 

1,000 

Solution 

24    X 

10,000 

= 

240,000 

26    X 

20,000 

= 

520,000 

28    X 

17,000 

= 

476,000 

30    X 

40,000 

= 

1,200,000 

2/40  X 

12,000 

= 

480,000 

50    X 

1,000 

= 

50,000 

100,000  2,966,000 

2,966,000        -J-         100,000  29.66 

average  number  of  yarn  spun 

(2)  If  the  cost  of  operating  the  spinning  department  for 
the  month  of  January,  1917,  was  $1,038.10,  what  was  the 
conversion  cost  of  the  average  number  of  yarn  spun  ? 


234 


PKOBLEMS  IN  COST  ACCOUNTING 


Solution 

$1,038.10    -f-    100,000  pounds    =    $.010381 
cost  per  pound  for  spinning  yarn  No.  29 . 66 

(3)  If  the  conversion  cost  of  spinning  the  average  number 
(29.66)  of  yarn  is  $.010381  per  pound,  what  is  the  cost  of 
spinning  yarn  numbers  24,  26,  28,  30,  2/40,  and  50  ? 

Solution 

$.010381     -^     29.66     =     $.00035 
cost  per  pound  of  spinning  No.  1  yarn 

Yarn  Coat  per 

No.        Cost  per  Pound  for  Spinning  No.  1    Pound  for 

Spinning 


24 

X 

$.00035 

$.0084 

26 

X 

.00035 

.0091 

28 

X 

.00035 

.  0098 

30 

X 

.00035 

.  0105 

40 

X 

.00035 

.  0140 

50 

X 

.00035 

.  0175 

PROOF  OF  ACCURACY  OF  CALCULATION 


Yarn  No. 

Pounds  Spun 

Cost  per  Pound 
for  Spinning 

Total  Cost  of 
Spinning 

24 

10,000 

$.0084 

$84.00 

26 

20,000 

.0091 

182.00 

28 

17,000 

.0098 

166.60 

30 

40,000 

.0105 

420.00 

2/40 

12,000 

.0140 

168.00 

50 

1,000 

.0175 

17.50 

$1,038.10 

Note:  A  2/40  yarn  is  made  by  twisting  two  strands  of 
No.  40  together.  Inasmuch  as  the  twisting  operation  takes 
place  after  spinning,  the  2/40  yarn  is  handled  in  the  preced- 
ing example  as  if  it  were  single. 


COSTS  235 

Problem  67 

(1)  What  was  the  average  number  of  yarn  spun  in  the 
Bedford  Yarn  Co.'s  mill  for  January,  1917,  the  produc- 
tion reported  being  as  follows  ? 

SPINNING  DEPAKTMENT  PRODUCTION 

Yarn 
No.  Description  Pounds 


26 

Chain  Warp 

20,500 

30 

« 

u 

10,000 

34 

a 

u 

30,250 

40 

u 

u 

17,700 

50 

Skein 

40,000 

60 

• 

12,200 

64 

u 

4,350 

(2)  What  was  the  conversion  cost  of  the  average  number 
of  yarn  spun,  the  cost  of  operating  the  spinning  department 
for  January,  1917,  being  $2,025.00? 

(3)  What  was  the  conversion  cost  of  spinning  yarn  num- 
bers 26,  30,  34,  40,  50,  60  and  64,  based  on  the  cost  of  spin- 
ning an  average  number  ? 

Prove  the  mathematical  accuracy  of  all  calculations. 

Problem  68 

(1)  What  was  the  average  number  of  yarn  spooled  in  the 
New  Bedford  Yarn  Co.'s  mill  for  January,  1917,  the  produc- 
tion of  the  spooling  department  being  as  follows  ? 

SPOOLING  DEPARTMENT  PRODUCTION 

Yarn 
No.  Description  Pounds 


26 

Chain  Warp 

18,000 

30 

U                  tt 

11,000 

34 

«            a 

30,000 

40 

tt                        tt 

20,000 

50 

Skein 

38,000 

60 

a 

12,000 

64 

w 

4,000 

236          PROBLEMS  IN  COST  ACCOUNTING 

(2)  What  was  the  conversion  cost  of  the  average  number 
of  yarn  spooled,  the  cost  of  operating  the  spooling  department, 
for  January,  1917,  being  $1,330.00? 

(3)  What  was  the  conversion  cost  of  spooling  yarn  num- 
bers 26,  30,  34,  40,  50,  60  and  64,  based  on  the  cost  of  spooling 
a  pound  of  the  average  number? 

Prove  the  mathematical  accuracy  of  all  calculations. 


CHAPTEK  XIII 
SUNDRY  COST  FINDING  PROBLEMS 

The  peculiarities  of  a  given  industry  have  to  be  studied 
before  any  plan  for  cost  finding  can  be  devised.  Each  line 
of  work  has  special  conditions  and  circumstances,  whether  it 
be  that  of  repair  shops,  bakeries,  silk  mills,  shoe  factories,  or 
other  industries.  In  every  case,  the  problems  presented  to  the 
cost  accountant  for  consideration  must  be  given  careful  thought 
before  a  decision  is  reached  as  to  the  best  plan  for  handling 
them.  There  are,  of  course,  the  so-called  standard  product  fac- 
tories, where  the  process  of  manufacture  is  continuous  on  the 
one  hand,  and  there  are  the  job  order  factories,  where  each 
piece  of  work  is  made  in  accordance  with  special  instructions 
on  the  other  hand.  Reference  to  the  following  cases  will  illus- 
trate how  some  of  the  problems  which  frequently  arise  in  every 
day  cost  work  should  be  handled  in  actual  practice. 

COST  OF  REPAIRS 

The  usual  practice  in  a  repair  shop  is  to  do  work  only  on 
orders.  Orders  are  generally  of  two  classes  called  productive 
orders  and  standing  expense  orders.  Employees  report  their 
time  against  the  proper  order  number.  All  material  and  sup- 
plies issued  from  the  stock  room  are  charged  against  some  Job 
number.  The  overhead  of  the  repair  shop  is  best  distributed 
to  productive  jobs  on  the  basis  of  the  hours  reported  spent  on 
productive  work.  The  cost  of  a  job  is  equal  to  the  sum  of  the 
material,  labor  and  overhead.  The  next  problem  is  taken  from 
a  municipal  repair  shop. 

237 


238 


PROBLEMS  IN  COST  ACCOUNTING 


Problem  69 

From  the  following  data  prepare  a  statement  showing  the 
cost  of  work  done  in  the  repair  shop  of  the  Department  of 
Docks  and  Ferries  during  the  month  of  January,  1917. 

The  form  for  tabulating  the  cost  of  work  done  is  given  in 
Exhibit  36. 

Schedule  1 

INVENTORY  OF  WORK  IN  PROCESS  ON  JAN.  1,  1917 


Job  No. 

Description 

Material 

Labor 

Over- 
head 

Total 

51 

Repairs  to  pile  driver  No.  1      .... 

$100 

$75 

$75 

$250 

60 

Repairs  to  pile  driver  No.  2  

50 

50 

50 

150 

70 

Repairs  to  launch  Patrol  

70 

40 

40 

150 

72 

Repairs  to  scow  No.  5  

250 

100 

100 

450 

80 

Alterations  to  tug  New  York  

1,000 

750 

750 

2,500 

Total   

$1,470 

$1,015 

$1,015 

$3,500 

During  the  month  of  January  the  following  orders  were 
issued  to  the  repair  shop  for  doing  work : 


Job  No. 


Description 


85  Make  necessary  repairs  to  launch   Brooklyn 

86  Make  necessary  repairs  to  f err yboat  Staten  Island 

87  Paint  tug  Richmond 

88  Overhaul  and  paint  automobile  6654 

89  Make  necessary  repairs  to  scow  No.  47 

STANDING  EXPENSE  ORDERS  FOR  JANUARY 

S.O.  1  Material  for  repairs  to  power  plant 

S.O.  2  Material  for  repairs  to  buildings 

S.O.  3  Material  for  repairs  to  office  equipment 

S.O.  4  Material  for  repairs  to  tools  and  machinery 

S.O.  5  Nonproductive  time  of  mechanics 

S.O.  6  Waste,  breakage  and  leakage 

S.O.  7  Office  supplies 

S.O.  8  General  plant  supplies 


DEPT  OF  DOCKS  AND  FERRIES 

REPAIR  SHOP 
COST  OF  WORK  PERFORMED  IN  JANUARY  1917. 

JOB 

NO. 

OPEfllHG- 
INVENTORY 

CURRENT  CHARGES 

TOTAL 

JOBS 

FINISHED 
/ 

s 

MATERIAL 

LABOR 

OVERHEAD 

TOTAL 

WORK  ORDERS 

TOTAL. 

ST  6.  EXP.  ORDERS 

GRAND 
TOTAL 

1  1 

i         ; 

^^ss. 

EXHIBIT  36.— Cost  Sheet. 
239 


Schedule  2 

STORES  ISSUED  ON  KEQUISITIONS  DURING  THE  MONTH  OF 
JANUARY,  1917 


Req.  No. 

Job  No. 

Quantity 

Unit 

Description 

Price 

1 

51 

200 

lb. 

Iron 

$.04 

2 

60 

175 

ft. 

Pine  (yellow) 

.025 

3 

70 

2 

ea. 

Hinges 

.75 

4 

72 

2,000 

ft. 

Flooring  (pine) 

.02 

5 

80 

500 

lb. 

Oakum 

.08 

6 

85 

50 

lb. 

Paint 

.50 

7 

86 

500 

lb. 

Paint 

.55 

8 

87 

600 

yd. 

Canvas 

.30 

9 

88 

40 

lb. 

Paint 

.70 

10 

89 

9,122 

ft. 

Pine  (yellow) 

.025 

11 

S.O.I 

60 

ea. 

Unions  (galv.) 

.50 

12 

S.O.  2 

50 

sheet 

Steel  (galv.) 

2.25 

13 

S.O.  3 

3 

ea. 

Door  checks 

4.00 

14 

S.O.  4 

2 

pc. 

Pipe 

2.65 

15 

S.O.  6 

5 

roll 

Paper 

.68 

16 

S.O.  7 

4 

doz. 

Erasers 

.30 

17 

S.O.  7 

10 

ea. 

Blotters 

.05 

18 

S.O.  8 

200 

lb. 

Solder 

.25 

19 

S.O.  8 

4 

can 

Glue 

.22 

Schedule  3 

DISTRIBUTION  OF  PRODUCTIVE  LABOR  FOR  THE  MONTH  OF  JAN- 
UARY,  1917 


Job  No. 

Hours 

Rate 

51  

10 

$.40 

60  

90 

.40 

70  

1 

.40 

72  

.    .          250 

.40 

80.  ..  ,  

5 

.40 

85  

14 

.40 

86  

125 

.40 

87  

50 

.40 

88  

12 

.40 

89  

1,000 

.40 

S.O.  5  

275 

.40 

Total  .  . 

1.832 

240 


COSTS  241 

Schedule  4 

DETAILED  ANALYSIS  OF  THE  INDIRECT  EXPENSE  ACCOUNT  FOR 

JANUARY,  1917,  MADE  AFTER  THE  BOOKS 

HAD  BEEN  CLOSED 

Supervision $352.72 

S.O.I  60  galvanized  unions,  ©    $.50 30.00 

S.O.  2  50  sheets  of  steel  (galv.),  @    2.25 112.50 

S.O.  3  3  door  checks,  each,  @    4.00 12.00 

S.O.  4  2  pieces  pipe,  @    2.65 5.30 

S.O.  5  275  hours  @       .40 . 110.00 

S.O.  6  5  rolls  paper,  @       .68 3.40 

Office  supplies 

4  dozen  erasers,  @       .30 1 .20 

10  blotters,  each,  @       .05 50 

General  plant  supplies 

200  Ib.  solder,  @       .25  50.00 

4  cans  glue,  @       .22' 88 

Depreciation 100.00 

Total  (1,557  productive  hours) $778.50 

During  the  month  of  January,   1917,  the  work  on  jobs 
No.  51,  60,  70  and  72  was  completed. 


COST  PER  SQUARE  YARD  OF  ASPHALT  LAID 

It  is  necessary  for  a  city  to  have  records  showing  the  cost 
of  laying  asphalt  when  a  municipal  asphalt  plant  is  operated, 
in  order  to  be  able  to  compare  the  cost  of  doing  the  work  with 
bids  by  outside  contractors.  The  principal  elements  to  be  in- 
cluded in  the  cost  of  preparing  and  laying  asphalt  are  interest 
on  the  investment  in  the  asphalt  plant,  taxes  on  the  property 
exempted  for  the  use  of  the  asphalt  plant,  depreciation,  fuel 
and  lubricants,  superintendence,  labor,  transportation,  and  ma- 
terials. When  all  of  the  facts  pertaining  to  the  various  ele- 


242          PROBLEMS  IN  COST  ACCOUNTING 

ments  of  the  costs  are  available,  it  is  not  a  difficult  matter  to 
arrive  at  the  cost.  The  sum  of  all  of  the  elements  of  cost  di- 
vided by  the  number  of  square  yards  of  pavement  laid  gives 
the  cost  per  square  yard.  The  following  problem  is  based  on 
the  figures  taken  from  a  large  municipal  asphalt  plant. 

Problem  70 

From  the  following  data  make  a  calculation  of  the  cost 
per  square  yard  of  asphalt  pavement  laid  by  a  municipal 
asphalt  plant. 

Schedule  1 

OVERHEAD  AND  DEPRECIATION 
1.    Interest 

Plant  Value 

Erection  and  equipment  of  building $117,319 

Water  supply  system 3,698 

Plumbing  system 1,840 

Road  rollers 9,495 

Equipment  and  tools 20,648 


$153,000 
Interest  on  plant  investment  at  5  per  cent  per  year. 

2.  Taxes 

Property  Value 
$160,000  exempted 

Loss  to  the  city  by  reason  of  exemption  from  taxation 
$160,000  at  $1 .87  per  $100. 

3.  Depreciation 

$153,000  at  10  per  cent  per  year. 

4.  Fuel  and  Lubricants 

Coal,  buckwheat  No.  2, 968  tons  @  $1 .25 
Coal,  egg,  170    "     @    3.70 

Wood,  4-foot  lengths,     121  cords  @    9 . 25 
Wood,  2-foot  lengths,       17  cords  @  10 . 00 

Grease  and  graphite,      895.  Ibs.,  total $103.75 

Oils,  3,500  gallons,  total ....     522 . 90 

Waste,  887  Ibs.  at$.08^ 


COSTS  243 

5.  Superintendence 

Superintendence @   $3,000  per  year 

Plant  supervision  at @      1,200    "       u 

Gang  supervision @      1,800    "       " 

Watchmen,  7 ....  @  $600  per  year 
Clerks,  2 @    750    «      " 

6.  Plant  Labor,  Details  of  Cost 

Foreman 315  days  @  $4 . 50 

Stationery  engineer 315      "     @    4 . 50 

Machinist 315     "    @    5.00 

Hoisting  engineer 315      "     @    4.75 

Fireman 1,575      "     ®    3.00 

Asphalt  workers 6,790     "    @    2.50 

• 

7.  Street  Labor,  Details  of  Cost 

Foreman 996  days  @  $4.50 

Steam  roller  engineer 950      "     @    4 . 75 

Asphalt  workers 24,473     B    @    2.50 

8.  Transportation,  Details  of  Cost 

Vehicle,  two  horses  and  driver. .     4,730  days  @  $7  00 

9.  Materials,  Details  of  Cost 

Sand 16,000  cu.  yds.  @  $  80 

Stone 4,547  "  "  ®  1.05 

Portland  cement  (2,000  Ibs.  to  a 

ton)  less  ten  cents  (lOc.)  per 

bag  rebate  (100  Ibs.  to  a  bag) . .  2,200  tons  @  $8 .07 
Asphaltic  cement 2,100  "  ©14.48 


Schedule  2 

Plant  Output 

Wearing  surface  mixture 243,086  cu.  ft. 

Binding  mixture 216,910      u 

The  number  of  square  yards  of  pavement  laid  with  this 
output  was  229,876. 


244  PROBLEMS  IN  COST  ACCOUNTING 

COST  PER  SQUARE  FOOT  FOR  FLOOR  SPACE  AND  COST 
PER  KILOWATT  HOUR  FOR  ELECTRICITY 

In  order  to  ascertain  the  rentable  value  of  the  floor  space 
in  a  building  it  is  necessary  to  take  into  consideration  all  of 
the  elements  of  cost.  The  main  elements  of  cost  are  operating 
expenses,  supervision,  water,  interest,  depreciation  and  taxes. 
The  following  problem  is  taken  from  the  accounts  of  the  Hall 
of  Records  building  in  New  York  City.  After  the  total  cost 
has  been  ascertained  it  is  necessary  to  attach  a  scale  of  values 
to  the  various  floors  of  the  building,  as  it  is  obvious  that  some 
floors  in  an  office  building  have  a  larger  market  value  than 
others. 

The  Hall  of  Records  building  in  New  York  City  contains 
a  central  electric  lighting  plant  for  which  the  operating  cost 
must  be  figured. 

All  of  the  elements  of  cost  are  given  in  the  following  prob- 
lem for  arriving  at  the  cost  per  square  foot  for  floor  space  and 
the  cost  per  kilowatt  hour  for  electricity  in  the  Hall  of  Records 
building. 

Problem  71 

Part  1 

From  the  following  data  make  a  calculation  of  the  cost  per 
square  foot  for  1917  of  the  space  on  each  floor  of  the  Hall 
of  Records  building  in  New  York  City. 

Schedule  1 
1.  Operating  Expenses 

The  cost  of  caretaking,  maintenance  and  miscellaneous 
changes  as  shown  by  books,  amounts  to  $36,350,  and  the  cost  of 
heat  and  light  to  $24,220. 


COSTS  245 

2.  Supervision 

The  cost  of  supervision  amounts  to  6  per  cent  of  the  operat- 
ing expense. 

3.  Water 

The  amount  of  water  consumed  by  the  Hall  of  Records 
building  (exclusive  of  the  power  plant)  was  1,000,000  cu.  ft. 
at  $1.00  per  1,000  cu.  ft. 

4.  Interest 

The  cost  of  acquiring  site  and  building  for  the  Hall  of  Rec- 
ords as  shown  by  the  records  of  the  Comptroller's  office  is  as 
follows : 

Acquiring  site $1,805,334 

Building 2,003,359 

Building  equipment 1,959,092 

Marble  equipment 250,064 

Mosaic  work 33,000 

Alterations 1,340,726 

Fees,  architects  and  engineers 393,102 


Total $7,784,677 

Average  interest  rate  on  bonds  issued  to  buy  the  site  and 
build  the  Hall  of  Records  is  3.29  per  cent. 

5.  Depreciation 

The  rate  of  depreciation  on  buildings  and  equipment  (ex- 
clusive of  steam  and  generating  plant  equipment,  which  cost 
$118,532)  has  been  calculated  on  a  life  of  fifty  years,  and  on 
a  straight  line  basis,  giving  an  annual  rate  of  2  per  cent. 

6.  Loss  in  Real  Estate  Taxes 

On  the  theory  that  if  the  site  occupied  by  the  Hall  of 
Records  building  were  privately  owned  and  improved,  a  cer- 
tain revenue  would  be  received  by  the  city  in  Real  Estate  Taxes ; 
the  amount  of  taxes  lost  bv  the  city  is.  to  be  included. 


246 


PKOBLEMS  IN  COST  ACCOUNTING 


This  loss  of  revenue  is  determined  as  to  land  on  the  basis 
of  the  assessment  for  the  year  1916,  which  was  $2,500,000, 
and  for  the  improvement  on  the  basis  of  the  square  feet  of 
land  occupied  by  the  Hall  of  Eecords  at  an  average  valuation 
of  $65.72,  or  approximately  $1,800,000;  the  average  rate  was 
determined  by  taking  the  assessed  calculation  of  twelve  charac- 
teristic buildings  in  the  neighborhood  and  the  estimated  site 
area  of  each. 

The  tax  rate  for  1916  was  $1.87  per  $100. 


Schedule  2 

The  area  of  the  various  floors  in  the  Hall  of  Records  is  as 
follows,  and  the  ratio  of  the  rental  value  of  each  to  the  total 
is  shown. 


Floor 

Area  in  Sq.  Ft. 

Ratio  % 

Cellar       

17,956 

4.46 

Basement    

17285 

6  45 

1st  floor  

12,100 

12.05 

2nd     u  

15,845 

11.81 

3rd     "  

14,489 

10.81 

4th     "  

14,133 

10.55 

5th     "     

14,680 

14.60 

5th     u  ,  Mezz  

2,500 

1.87 

6th     "  

15,626 

11.68 

7th     "  

13,206 

9.86 

8th     "     

11,786 

5.86 

Total  

149,606 

100.00 

Part  2 


The  space  occupied  by  the  power  plant  in  the  cellar  is  as 
follows : 


COSTS  247 

Sq.  Ft. 

Engine  room 2,114 

Battery  room 358 

Boiler  room 2,122 

Coal  storage 712 


Total 5,306 

What  is  the  annual  value  of  floor  space  chargeable  to  the 
power  plant? 

Part  3 

The  power  plant  generates  576,462  kw.  hours  of  electrical 
energy  annually,  and  in  addition  to  the  floor  space  charges  there 
are  the  following: 

1  Operating  expenses $39,311 

2  Water. !...  208 

3  Supervision 2,500 

4  Interest 2,900 

5  Depreciation 6,100 

6  Loss  in  taxes 1,150 

What  is  the  cost  per  kw.  hour? 

COST  OF  PRODUCING  AND  SELLING  BREAD 

In  the  bakery  business  a  cost  system  is  needed  to  show 
the  cost  of  producing  and  selling  the  output.  The  business 
should  be  departmentalized  in  order  to  arrive  at  the  cost  of 
cakes,  pies,  bread,  etc.,  separately.  If  only  one  line  is  handled 
the  problem  is,  of  course,  simplified.  The  following  problem 
has  to  do  only  with  the  cost  of  producing  and  selling  bread. 

Problem  72 

From  the  following  data  make  a  calculation  of  the  cost  of 
producing  1,000  seven-cent  loaves  of  bread,  and  ascertain  the 
net  profit  per  year  on  the  business. 


248 


PROBLEMS  IN  COST  ACCOUNTING 


Schedule  1 — Production 

Number  of  days  plant  is  operated  in  year . . .      300 
Number  of  loaves  produced  per  day 5,000 


Schedule  2 — Depreciation 


Cost 

Annual  Rate  of 
Depreciation 

% 

Building  

$15,000 

3 

Oven  

3,000 

10 

Mixer  

500' 

12H 

Divider  

1,000 

12H 

Rounder  

700 

12V£ 

Proof  er  '  

1,500 

12V£ 

Molder  

700 

12H 

Misc.  Equipment  

2,000 

20 

Wagons  

700 

20 

Horses  

700 

20 

Harnesses  

100 

20 

Automobile  

1,200 

20 

Schedule  3 — Interest 

The  company  has  a  mortgage  of  $15,000  on  which  6  per 
cent  interest  is  paid.  The  interest  is  to  be  included  as  a  part 
of  the  cost  of  production. 


Schedule  4 — Ingredients  per  1,000  Seven-cent  Loaves 

3  bbls.  flour  @ $10.00  per  bbl. 

Sugar  and  malt 1 . 50 

Shortening 2.00 

Milk 1.00 

Yeast 1.50 

Sundry  ingredients 1 . 00 


COSTS  249 

Schedule  5 — Labor  and  Other  Expenses  per  Year 

Labor  in  bake  shop  and  shipping  room $7,500 

Wrapping  supplies 1,500 

Repairs  to  building,  machines  and  factory 

equipment 600 

Sundry  bake  shop  expenses  (power,  fuel,  clean- 
ing, supplies,  etc.) 100 

Schedule  6 — Cost  of  Delivery  per  Year 

Repairs  to  wagons  and  autos  and  horseshoeing        $550 

Horse  feed,  gasoline  and  motor  oil 650 

Barn  labor 800 

Schedule  7— Cost  of  Selling  and  General  Expenses  per  Year 

Salaries  and  commissions  of  salesmen $6,000 

Advertising 2,000 

Manager's  salary  and  office  expense 3,000 

Insurance  and  taxes . .  300 


COST  OF  MAKING  100  YARDS  OF  BLACK  TAFFETA  SILK 

A  manufacturer  of  silk  needs  to  figure  the  cost  of  produc- 
ing each  fabric  in  order  to  fix  the  selling  price  intelligently. 
The  plan  is  to  estimate  the  cost  of  the  warp  first,  and  then  the 
cost  of  the  filling.  In  the  silk  business  the  former  is  called 
"Organzine"  and  the  latter  "Tram."  The  following  problem 
is  taken  from  a  silk  mill. 

Problem  73 

From  the  following  data  make  a  calculation  of  the  cost 
per  100  yards  for  producing  black  taffeta  silk. 

Schedule  1 — Cost  of  Warp 

1.  There  are  5,000  ends  in  the  warp,  for  which  $.02  per 
100  ends  is  paid  for  the  warping  operation. 


250          PROBLEMS  IN  COST  ACCOUNTING 

2.  The  organzine   (warp)    weighs  2.61   pounds  and  costs 
$5  per  pound. 

3.  Throwing  is  paid  for  at  the  rate  of  $.80  per  pound  of 
organzine;  dyeing  is  estimated  at  $1.00  per  pound  of  organ- 
zine; and  winding  is  paid  for  at  the  rate  of  $.10  per  pound  of 
organzine. 

Schedule  2 — Cost  of  Filling  and  Weaving 

4.  There  are  99  "woven  yards,"  for  which  $.10  per  yard 
is  paid  for  weaving. 

5.  The  tram   (filling)   weighs  2.49  pounds  and  costs  $5 
per  pound. 

6.  Throwing  is  paid  for  at  the  rate  of  $.35  per  pound  of 
tram;  dyeing  is  estimated  at  $1.00  per  pound  of  tram;  wind- 
ing is  paid  for  at  the  rate  of  $.10  per  pound  of  tram;  and 
quilling  is  paid  for  at  the  rate  of  $.10  per  pound  of  tram. 

7.  Picking  is  paid  for  at  the  rate  of  $.005  per  yard  for 
99  yards. 

8.  Overhead  expenses  amount  to  $5.40. 

9.  Finishing  amounts  to  $1.00. 

COST  OF  PRODUCING  A  DOZEN  PAIRS  OF  GOOD- 
YEAR WELT  SHOES 

Shoe  factories  are  highly  organized  and  it  is  necessary  to 
figure  the  cost  of  manufacture  carefully,  as  the  margin  of 
profit  is  oftentimes  very  narrow.  The  manufacture  of  the 
bottom  parts  is  ordinarily  carried  on  as  a  separate  department. 
There  is  much  waste  in  producing  sole  leather  products  and  so 
an  allowance  for  it  must  be  made  in  the  costs.  Thus,  if  11,450 
Ibs.  of  leather  at  $.55  were  used  and  450  Ibs.  of  scraps  worth 
$.10  per  pound  remained,  the  good  leather  would  cost  $.5684 
per  pound.  Then  if  the  outsoles  produced  weighed  5,500  Ibs., 
they  would  cost  $3,126.30  at  $.5684  per  pound.  Suppose  the 


COSTS  251 

labor  of  operators  on  the  outsoles  amounted  to  $157.50,  and 
the  overhead  amounted  to  100  per  cent  of  the  labor,  the  total 
cost  of  outsoles  for  material,  labor  and  overhead  would  be 
$3,441.30.  If  10,000  pair  of  outsoles  were  produced,  the  cost 
per  100  pairs  would  then  be  $34.41.  To  this  the  royalty  of, 
say,  $.50  per  100  pairs  would  have  to  be  added. 

Calf  skin  is  used  mostly  for  the  upper  leather  and  is  figured 
by  the  square  foot.  Thus,  if  500  square  feet  at  $.30  per  foot 
were  used  on  style  1311,  the  cost  would  be  $150,  and  if  450 
pairs  of  uppers  were  produced,  the  cost  per  pair  for  calfskin 
would  be  $.332.  In  addition  there  is  labor,  overhead,  findings 
and  royalty  in  the  upper  leather  department  to  be  added  to 
the  cost  of  leather. 

The  following  problem  is  taken  from  a  factory  making 
Goodyear  welt  shoes. 

Problem  74 

What  is  the  cost  of  producing  a  dozen  pairs  of  Goodyear 
welt  shoes,  Oxford  ties,  from  the  following  data  ? 

Part  1 

The  sole  leather  department  is  run  as  a  separate  factory. 
Sole  leather  is  bought  in  sides  at  an  average  price  of  $.55  per 
pound  and  cut  up  into  pieces  from  which  sole  leather  products 
are  manufactured,  such  as  outsoles,  insoles,  heels,  counters  and 
toe  boxes.  Items  chargeable  to  the  cost  of  manufacture  as  well 
as  the  production  of  sole  leather  products  are  given  in  the  fol- 
lowing schedules: 

Schedule  1 

Sides  of  sole  leather  issued  from  the  storeroom  for  January, 
1917,  were  as  follows: 


252 


Lot  No. 

No.  of  Sides 

Pounds 

Price 

Amount 

5 

100 

2,200 

$.55 

$1,210.00 

20 

150 

3,000 

.55 

1,650.00 

25 

120 

2,500 

.55 

1,375.00 

30 

200 

3,750 

.55 

2,062.50 

11,450 

$6,297.50 

Schedule  2 

The  direct  labor  pay  roll  for  the  sole  leather  manufacturing 
department  for  January,  1917,  was  as  follows: 

1.  Foreman  (part)      150  hours  @  $ .  40 $60 . 00 

2,3.  Operators,              500      "     ©    .30 150.00 

4.  «                     250      "     ©    .25 62.50 

5.  u                     250      «     ©    .20 50.00 


Total 1,150  hours 


$322.50 


DISTRIBUTION  OF  TIME 


•                Hours 

Toe 
Boxes 

Total 
Hours 

Outsoles 

Insoles 

Heels 

Counters 

1    Foreman  (part)  .  .  . 
2    Operator  

50 
250 

50 

50 

... 

150 
250 
250 
250 
250 

3           "       

200 

50 

4           «          

250 

5           "       

100 

75 

75 

Total  

550 

250 

200 

75 

75 

1,150 

Schedule  3 

The  analysis  of  the  overhead  expense  account  showed  that 
the  following  items  were  charged  to  the  sole  leather  manufac- 
turing department  in  January,  1917: 


COSTS 


253 


Supervision  (part) $100 . 00 

Supplies 20.00 

Repairs 40.00 

Depreciation 10 . 00 

Insurance 7 . 50 

Taxes 15.00 

Power  (part) 60 . 00 

Rent  (part) 70.00 


Total : .  $322.50 


Schedule  4 

SOLE  LEATHER  PRODUCTS  FOR  JANUARY,  1917 


Pounds  of 
Leather  Used 

Pieces 
Produced 

Outsoles  

5500 

10000 

Insoles  

1,500 

6,000 

Heels  

2,500 

8,000 

Counters  

1  000 

7000 

Toe  Boxes  

500 

5,000 

Waste  

450 

11,450 

36,000 

The  waste  was  sold  for  $.10  per  pound. 


Schedule  5 

The  royalties  per  100  pieces  on  sole  leather  products  are 
as  follows: 

Outsoles $ .  50 

Insoles 50 

Heels 30 

Counters 30 

Toe  Boxes. .  .30 


254 


PROBLEMS  IN  COST  ACCOUNTING 


Part  2 

A  test  was  made  to  ascertain  how  many  square  feet  of  calf 
skin'  are  required  to  make  a  dozen  pairs  of  uppers  of  each 
style  of  an  average  size.  Tho  results  are  shown  in  the  follow- 
ing table: 

Schedule  6 


Style 

Square  Feet  of 
Calf  Skin  Used 

Grade 

Cost  per 
Square  Foot 

Pairs  of  Uppers 
Produced 

1311 

500 

A 

$.30 

450 

2450 

550 

A 

.30 

525 

3000 

600 

A 

.30 

600 

3120 

650 

A 

.30 

675 

Piece  work  prevails  in  the  upper  leather  cutting,  stitching, 
lasting  and  finishing  departments.  The  aggregate  piece  work 
per  pair  on  the  several  styles  produced  is  as  follows : 

Schedule  7 


Style  Numbers 


1311 

2450 

3000 

3120 

Upper  Leather  1 

$.15 

$.15 

$.10 

$.10 

Cutting             / 
Stitching  

.10 

.10 

.10 

.10 

Lasting  

.10 

.10 

.10 

.10 

Finishing  

.15 

.10 

.10 

.05 

Total  

$.50 

$.45 

$.40 

$.35 

The  factory  overhead  amounted  to  100  per  cent  of  the  direct 
labor  in  the  upper  leather  cutting,  stitching,  lasting  and  finish- 
ing departments. 

The  findings,  such  as  thread,  eyelets,  laces,  etc.,  are  esti- 
mated to  cost  $.15  per  pair  and  the  royalty  paid  on  the  leased 
machinery  amounts  to  $.10  per  pair  more. 


CHAPTER  XIV 

JOURNAL,  LEDGER,  PROFIT  AND  LOSS  STATEMENTS 
AND  BALANCE  SHEET 

Cost  accountants  have  always  put  emphasis  upon  the  neces- 
sity for  incorporating  cost  records  into  the  controlling  ledger 
accounts.  The  value  of  the  interlocking  feature  of  cost  and 
financial  records  cannot  be  overestimated.  There  are  various 
methods  of  procedure  followed  in  obtaining  the  desired  control. 
The  usual  plan  is  to  prepare  the  necessary  journal. entries  which 
will  provide  for  making  the  charges  and  credits  to  the  proper 
accounts.  If  the  journal  entries  are  properly  made  the  posting 
of  the  ledger  is  a  mere  mechanical  process.  In  each  industry 
local  conditions  have  to  be  studied  in  order  that  a  system  may 
be  devised  to  meet  any  conditions  which  are  peculiar  to  the 
plant.  Reference  to  the  description  of  a  cost  system  for  a  foun- 
dry and  machine  shop,  which  follows,  will  illustrate  how  a 
typical  system  is  operated  in  practice.  A  description  of  the 
factory  ledger  accounts,  of  which  there  are  eleven,  is  given 
first.  Then  there  follow  several  schedules  which  contain  the 
data  required  for  making  the  necessary  entries  to  the  accounts 
in  the  ledger.  Next,  the  data  contained  in  the  schedules  is 
shown  journalized  ready  for  posting  to  the  ledger.  Finally 
all  of  the  ledger  accounts  are  shown  completely  posted.  The 
trial  balance  at  the  end  of  the  solution  shows  the  inventory 
value  of  the  work  in  process,  stores,  finished  goods  and  a  small 
balance  of  machine  shop  burden  remaining  undistributed  on 
the  debit  side.  The  balances  to  the  general  ledger  account  and 

255 


256          PROBLEMS  IN  COST  ACCOUNTING 

to  the  stores  expense  account  are  shown  on  the  credit  side  of  the 
trial  balance. 


COST  SYSTEM  FOB  A  FOUNDRY  AND  MACHINE  SHOP 

Example. — It  is  desired  to  install  a  cost  system  in  a  foundry 
and  machine  shop  so  as  to  determine  the  total  cost  of  all  cast- 
ings produced  each  month  in  Department  A,  Brass  Foundry, 
and  to  close  out  this  cost  to  accounts  to  which  the  castings  are 
delivered.  The  plan  is  to  operate  Department  B,  Machine 
Shop,  on  the  production  .order  system,  the  overhead  to  he  cal- 
culated on  the  man-hour  basis.  The  following  accounts  will 
be  required: 

1.  General  Ledger  Account 

This  account  is  opened  as  a  means  of  controlling  the  sub- 
sidiary factory  ledger  in  which  the  cost  accounts  are  kept.  The 
account  is  charged  for  the  finished  goods  sold,  and  credited  for 
the  opening  inventory,  purchases,  depreciation  and  pay  roll. 

2.  Department  A,  Foundry,  Work  in  Process  Account 

This  account  is  charged  for  the  rent,  depreciation,  sup- 
plies, stores,  building  expense,  power,  office  and  general  ex- 
pense and  pay  roll  incurred  in  connection  with  the  operation 
of  the  foundry.  The  account  is  credited  for  all  castings  de- 
livered. 

3.  Department  B,  Work  in  Process,  Machine  Shop  Account 

For  convenience  in  handling  this  problem  it  is  suggested 
that  the  work-in-process — machine  shop — account  be  subdi- 
vided into  three  parts  numbered  1,  2  and  3,  respectively,  for 
the  purpose  of  keeping  control  over  the  jobs  in  process.  Each 


COSTS  257 

of  the  three  accounts  is  charged  for  the  pay  roll,  stores,  De- 
partment A,  production,  and  Department  B,  overhead  expense, 
respectively,  and  credited  for  finished  goods  produced. 

4.  Department  6,  Machine  Shop  Overhead  Expense 

This  account  is  operated  for  the  purpose  of  showing  the 
rent,  depreciation,  supplies,  repairs,  power,  huilding  expense 
and  indirect  expense  chargeable  to  the  overhead  of  the  ma- 
chine shop.  The  account  is  distributed  to  the  jobs  in  process 
in  the  machine  shop. 

5.  Stores  Account 

The  stores  account  is  charged  for  the  initial  inventory,  pur- 
chases, Departments  A  and  B,  production,  and  credited  for 
stores  issued. 

6.  Finished  Goods  Account 

This  account  is  charged  for  the  opening  inventory,  and  also 
when  deliveries  are  made  of  finished  goods  manufactured.  The 
account  is  credited  when  finished  goods  are  sold. 

7.  Stores  Expense  Account 

This  account  is  charged  for  rent,  depreciation,  building  ex- 
pense, office  and  general  expense  incurred  in  connection  with 
handling  of  the  stores.  The  account  is  credited  when  stores 
are  issued  from  the  storehouse  at  a  uniform  rate  of  6  per  cent. 

8.  Office  and  General  Expense  Account 

This  account  is  charged  for  rent,  purchases,  depreciation, 
superintendence,  clerks,  and  building  expense  incurred  in  con- 


258  PROBLEMS  IN  COST  ACCOUNTING 

nection  with  the  offices  and  general  administration.  The  ac- 
count is  credited  for  amounts  transferred  to  other  departments 
on  the  basis  of  direct  and  indirect  labor. 


9.  Power  Account 

This  account  is  operated  for  the  purpose  of  ascertaining  the 
total  cost  of  producing  power.  The  account  is  credited  for 
amounts  transferred  to  other  accounts  on  the  basis  of  horse- 
power used. 

10.  Rent  Account 

This  account  is  charged  for  all  rent  paid  and  credited  for 
transfers  made  to  other  accounts  on  basis  of  floor  space  oc- 
cupied. 

11.  Building  Expense  Account 

This  account  is  charged  for  repairs  and  services  of  watch- 
man and  credited  for  amounts  transferred  to  other  accounts 
on  basis  of  floor  space  occupied  by  departments. 

The  preliminary  investigation  brings  out  the  following 
facts : 

\ 

Period  Covered,  One  Month 
Schedule  1 — Opening  Inventory 

Dept.  A 

Raw  Materials $7,000 

Finished  Goods • 4,000 

Work  in  process,  Order  No.  1 500 


Total $11,500 


COSTS 

Schedule  2 — Purchases 

Rent $1,200 

Raw  Material 12,000 

Fuel 600 

Repairs  to  Building 200 

Office  Supplies 50 


259 


$14,050 


Schedule  3 


Floor  Space, 
Sq.  Ft. 

Equipment 

Horse 
Power 

Dept.  A,  Brass  Foundry  

7,000 

$6,000 

35 

Dept.  B,  Machine  Shop  

7,000 

15,000 

300 

Power  Plant  

1,000 

4,500 

Storeroom  

1,000 

500 

Office  

1,000 

600 

17,000 

$26,600 

335 

Depreciation  on  equipment,  10%  per  year. 


Schedule  4 — Pay  Roll  Analysis 

Superintendent $170.00 

Foreman  and  clerk,  Dept.  A 160 . 00 

Foreman  and  clerk,  Dept.  B 140 . 00 

Storekeepers 150 . 00 

Clerks,  Office 160.00 

Watchman 45.00 

Engineer  and  Fireman 175 . 00 

Molders,  Dept.  A 1,275.00 

Work  in  Process,  Dept.  B 

Order  No.  1,  3,000  hours 600.00 

2,  4,000  hours 1,000.00 

3,  1,500  hours. ..." 400.00 

Repairs  to  Power  House 75 . 00 


Total $4,350.00 


260  PROBLEMS  IN  COST  ACCOUNTING 

Schedule  5 — Stores  Requisitions 

Supplies,  Dept.  A $25.00 

Supplies,  Dept.  B 45.00 


$70.00 

Work  in  Process 

Order  No.  1 $2,000.00 

2 2,000.00 

3 1,000.00 


Sub-Total $5,000.00 

Oil  for  Power  House 40.00 

Repairs,  Dept.  B 160.00 


Total $5,200.00 

Six  per  cent  is  to  be  added  to  cover  expense  of  handling 
stores. 

Schedule  6 — Transfer  of  Stock 

Department  B  reports  that  two  castings  originally  ordered 
for  Order  No.  2  have  now  been  used  for  Order  No.  3,  100 
pounds  at  $.27  per  pound. 

Schedule  7 — Scrap  Report 

Department  B  reports  recovery  of  310  pounds  of  brass  turn- 
ings at  $.16  per  pound,  and  sending  same  to  stores. 

Schedule  8 — Stores  Consumed 

Department  A  reports  using  the  following  materials  out  of 
stores : 

10,000  pounds  copper  at $ .  15 

5,000  pounds  zinc  at 06 

200  pounds  turnings  at 15 

and  the  return  to  stores  of  600  pounds  scrap  brass  at  $.15  per 
pound. 


COSTS  261 

Schedule  9 — Castings  Produced 

Department  A  reports  production  of  15,000  pounds  of  cast- 
ings delivered  as  follows: 

Order  No.  1 2,000  Ibs. 

2 3,000    « 

3 2,000    « 

Stores 8,000    " 


Total 15,000  Ibs. 

Schedule  10 — Department  B,  Production 

Storekeeper  reports  receipt  of  goods  finished  as  follows: 

Order  No.  1 3,000  pieces  (all  of  order) 

2 1,250  pieces  (all  of  order) 


Invoices  of  goods  shipped  are  priced,  and  total  cost  of  same 
equals  $12,750. 

Make  the  entries  necessary  to  journalize  the  foregoing  trans- 
actions and  post  to  ledger  accounts.  Take  off  a  trial  balance 
from  the  ledger  after  posting  the  entries. 

Solution 
Journal  Entries 

(1) 
Inventory 

Stores $7,000.00 

Finished  Goods 4,000.00 

Dept.  B,  Work  in  Process  (1)  Machine  Shop. ...       500.00 

General  Ledger  Account $11,500.00 


262  PKOBLEMS  IN  COST  ACCOUNTING 

(2) 
Purchases 

Stores $12,000.00 

Fuel 600.00 

Repairs  to  building 200.00 

Rent 1,200.00 

Office  supplies 50.00 

General  Ledger  Account $14,050.00 

(3) 

Office 70.58 

Stores  Expense 70.58 

Power 70.58 

Dept.  A,  Foundry,  Work  in  Process 494 . 13 

Dept.  B,  Machine  Shop  Overhead 494 . 13 

General  Ledger  Account 1,200 . 00 

(4) 

Dept.  A,  Foundry  Work  in  Process 50 . 00 

Dept.  B,  Machine  Shop  Overhead 125 . 00 

Power  Plant 37.50 

Storeroom 4 . 17 

Office 5.00 

General  Ledger  Account 221 . 67 

Depreciation  for  month 

(5) 

Supt 170.00 

Foreman  &  clerk  Dept.  A,  Foundry 160 . 00 

Foreman  &  clerk  Dept.  B,  Overhead 140.00 

Storekeepers 150.00 

Clerks,  office 160.00 

Watchman 45.00 

Engineer  and  fireman 175 . 00 

Molders— Dept.  A,  Foundry 1,275.00 

Work  in  Process  B.  (1)  3,000  hrs 600.00 

(2)  4,000  hrs 1,000.00 

(3)  1,500  hrs 400.00 

Power  house  repairs 75 . 00 

General  Ledger  Account 4,350 . 00 


COSTS  263 

(6) 

Dept.  A,  Foundry $25.00 

Dept.  B,  Machine  Shop 45.00 

Stores $70.00 

6%  charge  on  above  for  stores  expense 

Dept.  A,  Foundry 1 .50 

Dept.  B,  Overhead 2.70 

Stores  Expense 4 . 20 

Dept.  B,  Work  in  Process — Machine  Shop 

Order  (1) 2,000 .00 

(2) 2,000.00 

(3) 1,000.00 

Stores  Expense 5,000.00 

6%  on  above  for  stores  expense 

Order  (1) 120.00 

(2) 120.00 

(3) 60.00 

Stores  Expense 300.00 

Power  House— Oil 40.00 

Dept.  B,  Overhead 160.00 

Stores  Expense 200.00 

6%  on  above 

Power  plant .- 2 .40 

Dept.  B,  Overhead 9.60 

Stores  Expense 12 .00 

(7) 

Work  in  Process  (3) 27.00 

(2) 27.00 

(8) 

Raw  Materials 49.60 

Dept.  B,  Overhead 49.60 

(9) 
Dept.  Foundry,  Work  in  Process 1,830.00 

Stores 1,830.00 

Stores 90.00 

Dept.  A,  Foundry,  Work  in  Process ...  90 . 00 


264     PROBLEMS  IX  COST  ACCOUNTING 

(10) 

Dept.  A,  Foundry,  Work  in  Process $100.88 

Dept.  B,  Overhead 100.88 

Power  Plant 14.41 

Storeroom 14.41 

Office 14.42 

Building  Expense $245.00 

To  distribute  building  expense  for  month,  distribu- 
tion based  on  space  occupied  by  departments. 

Dept.  A,  Foundry,  Work  in  Process 172.93 

Dept.  B,  Overhead 257.88 

Power  Plant 21.10 

Storeroom 18.09 

Office  and  General  Expense 470 . 00 

Distribution  of  office  and  general  expense  on  the 
basis  of  direct  and  indirect  labor. 

Dept.  A,  Foundry,  Work  in  Process 108 . 24 

Dept.  B,  Overhead 927.75 

Power  Account 1,035 . 99 

Distribution  of  power  account  on  basis  of  horse- 
power used. 

(11) 

Dept.  B,  Work  in  Process,  Machine  Shop 

(1) 550.36 

(2) 825.54 

(3) 550.36 

Stores  (castings) 2,201 .42 

To  Dept.  A 4,127.68 

Dept.  B,  Work  in  Process,  Machine  Shop 

(1)  3,000  hrs 780.00 

(2)  4,000  hrs 1,040.00 

(3)  1,500  hrs 390.00 

Dept.  B 2,210.00 

Distribution  of  burden  of  Dept.  B 

Finished  Goods 4,550.36 

Dept.  B,  Work  in  Process  (1) .'...' 4,550.36 

Finished  Goods 4,958.54 

Dept.  B,  Work  in  Process  (2) 4,958 . 54 

(12) 

General  Ledger  Account 12,750.00 

Finished  Goods . .  1 2.750 . 00 


COSTS 


265 


Dr. 


General  Ledger  Accounts 

1.    General  Ledger  Account 


Cr. 


J.  12  Finished  Goods..  $12,750.00 
Balance 17,371.67 


$30,121.67 


J.  1  Inventory $11,500.00 

J.  2  Purchases 14,050  00 

J.  4  Depreciation 221.67 

J.  5  Payroll 4,350.00 


$30,121  67 


Dr. 


2.     Department  A — Foundry — Work  in  Process 


Cr. 


J.    3  Rent  

$494.13 

J.    9  Stores  $90  .  00 

J.    4  Depreciation  

50.00 

J.  11  Sundries  4,127.68 

J.    5  Foreman  &  Clerks 
J.    5  Molders  

160.00 
1,275.00 

J.    6  Stores  

25.00 

J.    6  Stores  Expense  .  .  . 
J.    9  Stores  

1.50 
1,830.00 

J.  10  Building  Expense  . 
J.  10  Office  &Gen'lExp. 
J.  10  Power  

100.88 
172.93 
108.24 

J 

£4,217.68 

$4,217.68 

Dr. 


3.    Department  B — Work  in  Process — Machine  Shop  Cr. 


(1) 

J.    1  Inventory $500.00 

J.    5  Pay  Roll 600.00 

J.    6  Stores 2,000.00 

J.    6  Stores  Expense ...  120.00 

J.  11  Dept.  A 550.36 

J.  11  Dept.  B 780.00 

$4.550.36 


J.  11  Finished  Goods. . .  $4,550.36 


$4,550.36 


266 


PROBLEMS  IN  COST  ACCOUNTING 


(2) 

J.    5  Pay  Roll $1,000.00 

J.    6  Stores 2,000.00 

J.    6  Stores  Expense ...       120.00 

J.  11  Dept.  A 825.54 

J.  11  Dept.  B 1,040.00 


$4,985.54 


J.    7  Transfer $27.00 

J.  11  Finished  Goods.  . .    4,958.54 


$4,985.54 


(3) 

J.    5  Pay  Roll $400.00 

J.    6  Stores 1,000.00 

J.    6  Stores  Expense ...  60.00 

J.    7  Transfer 27.00 

J.  11  Dept.  A 550.36 

J.  11  Dept.  B 390.00 


$2,427.36 


Inventory $2,427.36 


$2,427.36 


Dr.         4.    Department  B — Machine  Shop — Overhead  Expense         Cr. 


J.    3  Rent $494.13 

J.    4  Depreciation 125.00 

J.    5  Foreman  &  Clerk .  140.00 

J.    6  Stores 45.00 

J.    6  Stores  Expense.  . .  2.70 

J.    6  Repair  Stores 160 . 00 

J.    6  Stores  Expense. . .  9.60 

J.  10  Building  Expense .  100 . 88 

J.  10  Office  &  Geri'l  Exp.  257 . 88 

J.  10  Power..  927.75 


$2,262.94 


J.    8  Stores $49.60 

J.  11  Sundries 2,210.00 


Balance . 


3.34 


$2.262.94 


Dr. 

COSTS 
5.    Stores 

267 
Cr. 

J. 
J. 

J. 
J. 
J. 

1 

2 

8 
9 

11 

Inven 
Purch 
Dept. 
Dept. 
Dept. 

tory  .... 

.  .  .  $7,000 

00 
00 
60 
00 
42 

J. 
J. 
J. 
J. 

i 

6 
6 
6 

9 

Sundries 
Stores  .  . 

$70 

00 
00 
00 
00 
02 

ases  .... 

.  .  .  12,000 

5,000 

B  

49 

Sundries 
Dept.  A, 
Balance  . 

200 

A  

90 

Foundry.    1,830 
14,241 

A  

...    2,201 

$21,341 

02 

$21,341 

02 

Dr. 


6.    Finished  Goods 


Cr. 


J.    1  Inventory  

$4,000.00 
.    4,550.36 
.    4,958.54 

J.  12  General  Ledger  Ac- 
count    $12,750.00 

J.  11  Work  in  Process  . 
J.  11  Work  in  Process. 

Balance  758.90 

$13,508.90 

$13,508.90 

Dr. 

7.    Stores  Expense                                      Cr. 

J.    3  Rent  

$70.58 
4.17 
150.00 
14.41 
18.09 
58.95 

J.    6  Sundries  $4  .  20 

J.    4  Depreciation  .... 

J.    6  Sundries  300.00 

J.    5  Storekeepers.  .  .  . 

J.    6  Sundries  12  .  00 

J.  10  Building  Expense 
J.  10  Office  &  Gen'l  Exp 
Balance    

Dr.                           8. 

$316.20 

$316.20 

Office  and  General  Expense                            Cr. 

J.    3  Rent  '. 

$70.58 
50.00 
5.00 
170.00 
160.00 
14.42 

J.  10  Sundries  $470.00 

J.    2  Purchases  

J.    4  Depreciation  .... 

J.    5  Superintendent  .  . 
J.    5  Clerks,  office  

J.  10  Building  Expense  . 

$470.00 

$470.00 

2G8          PROBLEMS  IN  COST  ACCOUNTING 
Dr.                                      9.    Power  Account                                      Cr. 

J     2  Purchases 

$600.00 
70.58 
37.50 
175.00 
75  004 
40.00 
2.40 
14.41 
21.10 

J.  10  Sundries  $1,035.99 

J.    3  Rent   

J     4  Depreciation  

J.    5  Eng'r  &  Fireman.  . 
J.    5  Repair  Labor  

J.    6  Oil            

J.    6  Stores  Expense  .  .  . 
J.  10  Building  Expense  . 
J.  10  Office  &Gen'lExp. 

Dr. 

$1,035.99 

$1,035.99 

10:    Rent                                           Cr. 

J.    2  Purchases  

$1,200.00 
11.    Build 

J.    3  Sundries  $1,200.00 

Dr. 

ng  Expense                                   Cr. 

J.    2  Purchases,  Repairs 
J.    5  Watchman  

$200.00 
45.00 

J.  10  Sundries  $245.00 

$245.00 

$245.00 

Trial  Balance 

Gen'l  Acct 

Work  in  Process $2,427.36 

Stores.. . , 14,241.02 

Finished  Goods 758.90 

Dept.  B,  Overhead-undistributed  Burden. ...  3.34 

Stores  Expense  Acct 


$17,371.67 


58.95 


$17,430.62         $17,430.62 


COST  ACCOUNTS  FOR  A  MACHINE  TOOL  BUILDER 

Machine  shops  are  highly  organized  and  the  following  prob- 
lem is  presented  in  order  to  bring  out  some  of  the  features 
which  are  peculiar  to  the  mechanical  industry.  It  is  not  neces- 


COSTS  269 

sary  for  students  to  prepare  journal  entries,  as  the  entries  can 
be  made  directly  to  the  ledger  accounts. 

Problem  75 

From  the  data  contained  in  the  following  schedules  taken 
from  the  books  of  a  large  machine  tool  builder  make  the  neces- 
sary ledger  entries,  close  the  accounts,  and  prepare  a  trial  bal- 
ance. 

The  general  ledger  accounts  required  in  a  mechanical  in- 
dustry for  the  purpose  of  obtaining  control  over  the  cost  records 
are  as  follows : 

Raw  Material  Account. — This  account  is  set  up  from  an 
inventory  of  the  raw  stores  and  acts  as  a  control  over  the  sub- 
sidiary raw  material  stock  ledger.  The  raw  material  account 
is  charged  when  raw  stores  are  received,  and  credited  when 
they  are  issued  on  requisitions.  The  balance  to  this  account  is 
set  up  as  an  inventory  on  the  balance  sheet. 

Piece  Parts  Account. — The  inventory  of  piece  parts  in  the 
storeroom  serves  to  open  this  account.  Parts  whether  manu- 
factured or  purchased  are  charged  to  the  piece  parts  account 
when  delivered  to  the  stock  room  and  credited  when  deliveries 
are  made  on  requisitions.  The  balance  to  the  piece  parts  ac- 
count serves  as  a  control  over  the  subsidiary  piece  parts  ledger, 
which  should  agree  in  quantity  with  a  physical  count  and  in 
amount  with  the  general  ledger  balance. 

Manufacturing  Account. — The  manufacturing  account  is  set 
up  from  an  inventory  of  the  work  in  process  in  the  shop.  All 
raw  material  and  piece  parts  delivered  to  the  factory  on  requisi- 
tions are  chargeable  to  this  account.  The  direct  labor  and  bur- 
den applied  as  a  part  of  the  cost  of  jobs  are  also  charged  to  the 
manufacturing  account.  The  entire  production  of  the  factory 
is  a  credit  to  this  account;  the  balance  represents  the  cost  of 
the  jobs  in  process  of  manufacture. 


270          PROBLEMS  IN  COST  ACCOUNTING 

Finished  Goods  Account. — This  account  is  opened  with  an 
inventory  of  the  finished  goods  on  hand,  and  is  charged  for  the 
finished  goods  produced,  and  credited  when  they  are  sold.  The 
balance  acts  as  a  control  over  the  stock  record  of  finished  goods 
and  is  set  up  as  an  inventory  when  making  up  a  statement. 

Supplies  Account. — The  supplies  on  hand  at  inventory  time 
are  set  up  to  open  this  account.  The  supplies  account  is  charged 
for  supplies  purchased,  and  credited  when  they  are  withdrawn 
from  stores. 

Cost  of  Sales  Account. — This  account  is  opened  to  show  the 
cost  of  goods  sold  during  each  accounting  period.  It  is  charged 
with  the  cost  of  goods  shipped  and  credited  when  goods  are 
returned  hy  customers.  The  cost  of  sales  account  is  closed  into 
loss  and  gain  account. 

Rent  Expense  Account. — This  account  shows  the  expense 
relating  to  grounds,  buildings,  and  rent  fixtures,  such  as  heat- 
ing apparatus,  cooling  water  system  and  passenger  elevators. 
After  making  sundry  transfers  to  other  expense  accounts,  the 
rent  expense  account  is  closed  into  machine  expense. 

Power  Expense  Account. — This  account  is  operated  to  show 
the  expense  relating  to  boilers,  pumps,  heaters,  boiler  piping, 
coal  and  ash  conveyors,  engines,  dynamos,  switchboards,  con- 
densers, piping,  shafting,  pulleys  and  belting.  After  making 
sundry  transfers  to  other  expense  accounts  the  balance  to  the 
power  expense  account  is  closed  into  machine  expense. 

Lighting  Expense  Account. — This  account  shows  the  ex- 
pense relating  to  the  general  illuminating  system,  distributing 
mains,  wiring,  arc  lights  and  incandescent  lamps.  After  the 
necessary  transfers  are  made  the  balance  to  the  lighting  ex- 
pense account  is  closed  into  machine  expense. 

Fixed  Charges  on  Machinery  Account. — This  account  is 
operated  to  show  the  amount  of  the  depreciation,  insurance  and 
taxes  on  the  machinery  and  apparatus  used  in  connection  with 


COSTS  271 

machinery.    The  total  fixed  charges  on  machinery  are  a  charge 
to  machine  expense. 

Tools  Expense  Account. — This  account  refers  to  the  care 
and  repair  of  machine  tools,  expense  incurred  in  the  operation 
of  the  tool  drafting  rooms,  machine  belting  and  wages  of  oilers. 
The  balance  to  this  account  is  closed  into  machine  expense. 

Sundry  Expense  Account. — This  account  is  opened  to  show 
the  cost  of  defective  work,  repairs  to  shop  fixtures,  other  than 
trucks  and  scales,  miscellaneous  oils  and  supplies.  The  sundry 
expense  account  is  closed  into  machine  expense. 

Administration  Expense  Account. — This  account  is  operated 
to  show  the  expense  of  shop  supervision,  including  salaries  of 
superintendent,  foremen  and  clerks,  as  well  as  any  expenses 
incurred  in  connection  with  their  offices.  The  balance  remain- 
ing in  the  administration  expense  account  is  a  charge  to  ma- 
chine expense. 

Material  Expense  Account. — This  account  is  set  up  to  show 
the  expense  incurred  in  purchasing,  receiving,  handling  and 
storing  shop  materials.  The  account  is  credited  for  the  material 
expense  applied  as  burden  on  costs,  the  manufacturing  account 
being  charged. 

Drafting  Expense  Account. — This  account  shows  the  ex- 
pense incurred  in  drafting,  blue-printing  and  photographing. 
The  drafting  expense  account  is  credited  for  the  amount  of  the 
drafting  expense  applied  on  jobs,  the  finished  goods  account 
being  charged. 

Selling  Expense  Account. — The  selling  expense  account  is 
opened  to  show  the  cost  of  selling  the  product,  and  is  closed 
into  loss  and  gain  at  the  end  of  each  accounting  period. 

Machine  Expense  Account. — This  account  is  operated  as  a 
clearing  account.  The  rent,  power,  lighting,  fixed  charges, 
tools,  sundry  and  administrative  expense  accounts  are  closed 
into  machine  expense.  The  burden  applied  on  costs  by  means 


272  PROBLEMS  IN  COST  ACCOUNTING 

of  machine  hourly  rates  is  credited  to  this  account,  the  manu- 
facturing account  being  charged. 

Pay  Roll  Account. — This  account  is  operated  as  a  clearing 
account.  The  pay  rolls  are  charged  to  pay  roll  account  and 
then  the  account  is  credited  when  the  pay  rolls  are  distributed. 

Opening  Inventory. — 

Raw  Material $5,000 

Piece  Parts 16,500 

Manufacturing 15,710 

Finished  Goods 30,000 

Supplies 7,400 

The  cash  book  showed  four  pay  rolls  as  follows  for  the 

period : 

$17,000 
18,000 
16,500 
19,800 

Schedule  1 — Sundry  Accounts 

Rent  Expense $1,200 

Supplies  for  cleaning $200 

Repairs  to  building 1,000 

Power  Expense 15,750 

Supplies — waste 250 

oils 600 

coal 12,000 

belting.... 900 

Repairs  to  power  plant 2,000 

Lighting  Expense 260 

Supplies — waste 50 

Repairs  to  lighting  system 210 

Tools  Expense 1,800 

Supplies — waste 100 

belting 1,200 

Repairs  to  machine  tools 500 

Administration  Expense 500 

Supplies— stationery 500 


COSTS  273 

Drafting  Expense $1,600 

Supplies — photographing $800 

blue-printing 300 

drafting 500 

Note:  The  above-mentioned  supplies  amounting  to  $17,400 
are  to  be  credited  to  the  supplies  account,  and  the  repairs 
amounting  to  $3,710  to  manufacturing  account,  as  they  were 
done  on  orders. 

Schedule  2 — Fixed  Charges 

Rent  Expense $1,590 

Depreciation $1,000 

Insurance 300 

Taxes 290 

Power  Expense 2,850 

Depreciation 2,000 

Insurance 500 

Taxes 350 

Lighting  Expense 265 

Depreciation 200 

Insurance 25 

Taxes 40 

Fixed  Charges  on  Machinery 5,880 

Depreciation 4,000 

Insurance 1,000 

Taxes 880 

Sundry  Expense 175 

Depreciation 100 

Insurance 50 

Taxes 25 

Material  Expense 1,050 

Depreciation 700 

Insurance 250 

Taxes 100 

* 
Note:     The  depreciation  amounting  to  $8,000,  insurance 

$2,125,  and  taxes  $1,685  are  to  be  credited  to  the  accounts 

mentioned. 


274  PROBLEMS  IN  COST  ACCOUNTING 

Schedule  3 — Pay  Roll  Distribution 

Direct  Labor  Manufacturing $50,000 

Indirect  Labor 

Rent  Expense 10,000 

Power  Expense 2,000 

Lighting  Expense 300 

Tools  Expense 100 

Administration  Expense 3,000 

Sundry  Expense 300 

Material  Expense 600 

Drafting  Expense 2,000 

Selling  Expense 3,000 

Note:     The  total  of  the  pay  roll  amounting  to  $71,300  is 
to  be  credited  to  the  pay  roll  account. 

Schedule  4 — Distribution  of  Rent,  Power  and  Lighting 

Expense  Dr  Cr 

Rent  Expense $100 

Power  Expense $100 

Power  Expense 130 

Rent  Expense 110 

Lighting  Expense 20 

Lighting  Expense 900 

Power  Expense 900 

Tools  Expense 25 

Rent  Expense 20 

Lighting  Expense 5 

Administration  Expense 3,500 

Rent  Expense 3,000 

Lighting  Expense 500 

Material  Expense 1,500 

Rent  Expense 1,000 

Lighting  Expense 150 

Drafting  Expense 320 

Rent  Expense 300 

Lighting  Expense 20 

Note:     The  total  rent  amounting  to  $4,430,  power  $1,000 
and  lighting  $695  are  to  be  credited  to  the  respective  accounts. 


COSTS 


275 


Schedule  5 — Distribution  of  Expense 

Dr.  Cr. 

Machine  Expense $50,000 

Rent  Expense $12,600 

Power  Expense 20,335 

Lighting  Expense 1,050 

Fixed  Charges 5,880 

Tools  Expense  1,960 

Sundry  Expense  675 

Administration  Expense 7,500 

Manufacturing  account  is  to  be  charged  for  the  total  ma- 
chine expense  amounting  to  $50,000,  and  machine  expense  ac- 
count credited. 

Manufacturing  account  is  also  to  be  charged  for  $3,000 
material  expense  and  material  expense  account  credited. 


Schedule  6 — Distribution  of  Stores 

Dr. 


Cr. 


Manufacturing $55,000 

Raw  Material $30,000 

Piece  Parts 25,000 

Piece  Parts 20,000 

Manufacturing 20,000 

Finished  Goods 125,000 

Manufacturing 120,000 

Drafting  Expense 5,000 

Cost  of  Sales 140,150 

Finished  Goods 140,150 

Finished  Goods 10,150 

Cost  of  Sales 10,150 

The  foregoing  stores  to  be  posted  as  indicated. 

Schedule  7 — Loss  and  Gain 

Dr.  Cr. 

Sales $180,000 

Discounts  Received 5,200 

Interest  Received 800 

Loss  and  Gain $186,000 


276 

Dr.  Cr. 

Loss  and  Gain $146,000 

Cost  of  Sales $130,000 

Selling  Expense 12,000 

Discounts  Allowed 4,000 


COST  ACCOUNTS  FOR  A  FURNITURE  FACTORY 

Reference  will  next  be  made  to  the  cost  accounts  in  a  furni- 
ture factory,  in  order  to  illustrate  some  of  the  peculiarities  of 
cost  accounting  in  wood-working  industries.  A  complete  de- 
scription of  each  cost  account  is  first  given,  followed  by  thirteen 
schedules  which  contain  the  data  required  for  making  the  neces- 
sary entries  to  the  cost  accounts.  At  the  end  of  the  problem 
the  answer  is  given  in  the  form  of  a  trial  balance.  The  balance 
to  the  several  "Loss  and  gain  on  estimates"  accounts  represents 
the  inventory  value  of  the  mahogany,  oak  and  pine  in  process 
of  manufacture  at  the  time  of  closing  the  books. 

Problem  76 

'From  the  data  given  in  the  following  schedules  open  the 
factory  ledger  and  make  the  necessary  ledger  entries  to  show 
how  the  cost  accounts  in  a  furniture  factory  would  be  operated. 
After  all  entries  have  been  made  prepare  a  trial  balance. 

A  brief  description  of  the  factory  ledger  accounts  follows: 

Lumber  (An  account  for  each  kind) 

An  account  is  opened  for  each  kind  of  lumber  with  the 
inventory  of  the  stock  on  hand.  Purchases  of  lumber  are  charged 
to  the  respective  lumber  accounts  and  these  accounts  are  credited 
for  all  lumber  used.  The  balances  to  the  lumber  accounts  show 
the  amount  of  each  kind  of  lumber  on  hand.  The  various  lum- 
ber accounts  operated  on  the  factory  ledger  act  as  a  control 


COSTS  277 

over  the  subsidiary  stock  records  of  lumber,  with  which  they 
should  be  reconciled  at  frequent  intervals. 

Furniture  Hardware  Account 

The  amount  of  furniture  hardware  on  hand  is  set  up  to 
open  this  account.  The  account  is  charged  for  the  hardware 
purchased  and  credited  for  the  hardware  used  on  jobs  in 
process  of  manufacture.  The  ledger  balance  shows  the  amount 
of  hardware  on  hand  and  should  agree  in  amount  with  the 
hardware  stock  record  cards. 

Manufacturing  Account 

The  manufacturing  account  is  operated  on  the  factory  ledger 
to  show  the  cost  of  goods  produced  and  in  process  of  manufac- 
ture. This  account  is  charged  for  the  amount  of  lumber  esti- 
mated, hardware,  direct  labor  and  burden  entering  into  the 
cost  of  manufacture  and  credited  for  the  cost  of  finished  goods. 
The  balance  represents  the  cost  of  goods  in  process. 

Finished  Goods  Account 

This  account  is  opened  with  the  amount  of  the  inventory 
of  finished  goods  on  hand.  Charges  to  this  account  are  made 
when  goods  are  produced  in  the  factory.  When  goods  are  sold 
they  are  credited  to  the  finished  goods  account. 

Factory  Supplies  Account 

This  account  is  opened  with  an  inventory  of  the  factory 
supplies  on  hand.  When  supplies  are  purchased  they  are 
charged  to  the  factory  supplies  accounts.  Deliveries  of  supplies 
made  to  the  various  departments  in  the  factory  are  credited 
to  the  supplies  account. 


278 

Stock  Burden  Account 

Mill  Dept.  Burden  Account 

Cabinet  Making  Dept.  Burden  Account 

Finishing  Dept.  Burden  Account 

Trimming  Dept.  Burden  Account 

General  Factory  Burden  Account 

These  burden  accounts  are  opened  on  the  factory  ledger 
to  provide  a  means  for  obtaining  the  amount  of  burden  charge- 
able to  each  department.  The  general  factory  burden  account 
is  distributed  among  the  other  factory  burden  accounts  by 
means  of  a  journal  entry  at  the  close  of  each  accounting  period. 

Loss  and  Gain  on  Mahogany  Estimates  Account 

Loss  and  Gain  on  Oak  Estimates  Account 
Loss  and  Gain  on  Pine  Estimates  Account 

These  accounts  are  operated  as  a  means  of  determining  the 
amount  of  shrinkage  in  lumber  between  the  amount  actually 
used  and  the  amount  estimated  to  be  required  on  the  dimension 
lists  prepared  by  the  draftsman.  The  loss  and  gain  on  esti- 
mates accounts  are  charged  for  the  actual  amount  of  lumber 
drawn  out  of  the  storeroom.  They  are  then  credited  for  the 
estimated  amount  of  the  lumber  used.  An  adjustment  is  then 
necessary.  This  is  done  by  inventorying  the  pieces  of  lumber 
drawn  out  of  the  stock  room  but  not  used.  The  inventories 
thus  obtained  are  entered  on  the  credit  side  of  the  respective 
loss  and  gain  on  estimates  accounts.  The  balances  to  the  ac- 
counts are  then  transferred  by  means  of  a  journal  entry  to  the 
stock  burden  accounts. 

General  Ledger  Account 

The  general  ledger  account  is  opened  as  a  means  of  reconcil- 
ing the  factory  ledger  with  the  general  ledger.  The  general 
ledger  account  is  charged  for  the  cost  of  sales  and  by-products 


COSTS  279 

sold.  The  general  ledger  'account  is  credited  for  the  inventory, 
purchases,  pay  roll,  depreciation,  insurance  and  taxes.  At  the 
close  of  an  accounting  period  the  balance  to  the  general  ledger 
account  should  equal  the  balance  to  the  factory  ledger  account 
kept  in  the  general  ledger. 

From  the  foregoing  description  of  the  cost  accounts  it  is 
seen  how  the  cost  figures  can  be  tied  up  with  the  bookkeeping 
system  so  as  to  obtain  the  desired  control.  Whatever  estimates 
are  made  are  subject  to  adjustment  for  the  deviation  from  ac- 
tual consumption  as  measured  each  accounting  period. 

Note:  In  the  furniture  industry  the  department  referred 
to  as  the  mill  includes  the  machines  used  in  cutting  and  dress- 
ing the  various  parts  which  enter  into  the  completed  pieces. 
The  machines  used  are  known  as  lathes,  boring,  carving,  dove- 
tailing, joining,  molding,  mortising,  planing,  sanding,  sawing, 
scraping  and  tenoning  machines.  The  parts  of  furniture  pre- 
pared in  the  mill  are  assembled  in  the  cabinet-making1  depart- 
ment. The  finishing  department  is  where  the  assembled  pieces 
of  furniture  are  finished  by  means  of  staining,  filling,  shellack- 
ing, varnishing,  rubbing,  enameling  and  gilding.  Grain  paint- 
ing is  done  by  running  the  pieces  between  two  rollers,  one  of 
which  has  a  gelatine  surface  containing  the  design  which  prints 
the  grain.  Hardware  is  put  on  in  the  trimming  department. 

The  following  schedules  furnish  the  necessary  information 
for  making  the  ledger  entries : 

Schedule  1 

Opening  Inventory 

Mahogany  Lumber $5,000.00 

Oak  Lumber 4,500.00 

Pine  Lumber 6,100.00 

Furniture  Hardware 1,500 . 00 

Manufacturing 10,000.00 

Finished  Goods 20,000.00 

Factory  Supplies 2,000.00 


280  PROBLEMS  IN  COST  ACCOUNTING 

Schedule  2 

Purchases 

Mahogany  Lumber $12,000.00 

Oak  Lumber 10,500.00 

Pine  Lumber , 11,100.00 

Furniture  Hardware 2,400.00 

Factory  Supplies 1,000 . 00 

Stock  Burden 1,289.00 

Mill  Dept.  Burden 1,115.00 

Cabinet  Making  Dept.  Burden 428 . 00 

Finishing  Dept.  Burden 164.00 

Trimming  Dept.  Burden 125.00 

General  Factory  Burden 2,244 .00 

Schedule  3 

Payroll  Analysis 

Manufacturing $35,000.00 

Stock  Burden 1,200 . 00 

Mill  Dept.  Burden 2,500 . 00 

Cabinet  Making  Dept.  Burden 1,500 . 00 

Finishing  Dept.  Burden 1,100.00 

Trimming  Dept.  Burden 500.00 

General  Factory  Burden 1,000 . 00 

Schedule  4 

Factory  Supplies  Issued  from  Storeroom 

Stock  Burden $120.00 

Mill  Dept.  Burden *      710.00 

Cabinet  Dept.  Burden 700 .00 

Finishing  Dept.  Burden 600 . 00 

Trimming  Dept.  Burden 200.00 

General  Factory  Burden 110.00 


Schedule  5 

Fixed  Charges 

Stock  Burden $140.00 

Depreciation $70 . 00 

Insurance 30 . 00 

Taxes..  40.00 


COSTS  281 

Mill  Dept.  Burden $220.00 

Depreciation $100 . 00 

Insurance 45 .00 

Taxes 75.00 

Cabinet  Making  Dept.  Burden 100 . 00 

Depreciation 50.00 

Insurance 20.00 

Taxes 30.00 

Finishing  Dept.  Burden 45 . 00 

Depreciation 20 . 00 

Insurance 10 . 00 

Taxes 15.00 

Trimming  Dept.  Burden 85.00 

Depreciation 50 . 00 

Insurance 10 .00 

Taxes 25.00 

General  Factory  Burden 355 .00 

Depreciation 250 . 00 

Insurance 40.00 

Taxes 65.00 

Schedule  6 

Materials  Issued  from  Storehouse 

Mahogany $10,600.00 

Oak 7,400 . 00 

Pine 9,000.00 

Note:     The  mahogany,  oak  and  pine  consumed  are  to  be 
charged  to  the  following  accounts : 

Loss  and  gain  on  mahogany  estimates. 
Loss  and  gain  on  oak  estimates. 
Loss  and  gain  on  pine -estimates. 

Schedule  7 

Estimates  of  Materials  Used  in  Manufacturing 

Estimates  of  Mahogany $8,500.00 

Estimates  of  Oak 6,000.00 

Estimates  of  Pine 6,750.00 

Furniture  Hardware 1,200.00 


282  PROBLEMS  IN  COST  ACCOUNTING 

Note:  The  estimated  amount  of  mahogany,  oak  and  pine 
are  to  be  charged  to  manufacturing  account  and  credited  to  the 
respective  loss  and  gain  on  estimates  accounts,  opened  by  Sched- 
ule 6.  Furniture  hardware  is  not  subject  to  a  loss  and  gain 
adjustment,  and  so  the  entry  is  made  direct  to  the  debit  of  the 
manufacturing  account  and  to  the  credit  of  the  furniture  hard- 
ware account. 

Schedule  8 
Shrinkage  on  Lumber  Used 

The  actual  mahogany,  oak  and  pine  used  was  more  than  the 
estimated  amounts  as  follows: 

Loss  on  mahogany  estimates $1500.00 

Loss  on  oak  estimates 1000.00 

Loss  on  pine  estimates 1750.00 

Note:  The  stock  burden  account  is  to  be  charged  for  the 
loss  on  estimates  and  the  loss  and  gain  on  mahogany,  oak  or  pine 
estimates  accounts  credited. 

Schedule  9 

Distribution  of  General  Factory  Burden 

The  following  burden  accounts  are  to  be  charged  and  the 
general  factory  burden  account  credited: 

Stock  Burden $701  00 

Mill  Dept.  Burden 455.00 

Cabinet  Making  Dept.  Burden 272 . 00 

Finishing  Dept.  Burden 191 .00 

Trimming  Dept.  Burden 90.00 

Schedule  10 

Burden  Applied  on  Costs 

The  following  amounts  of  burden  were  applied  on  costs : 

Stock  Burden,  $110,000  @  7% $7,700.00 

Mill  Dept.  Burden,  20,000  hrs.  @  25c 5,000.00 

Cabinet  Making  Dept.  Burden,  15,000  hrs.  @  20c 3,000.00 

Finishing  Dept.  Burden,  14,000  hrs.  @  15c 2,100.00 

Trimming  Dept.  Burden,  10,000  hrs.  @  lOc 1,000 . 00 


COSTS  283 

Note:  The  total  burden  is  a  charge  to  manufacturing  and 
a  credit  to  the  respective  burden  accounts. 

Schedule  11 

Production  of  Finished  Goods 

The  production  of  finished  goods,  which  amounted  to  $40,- 
000  as  shown  by  the  cost  sheets,  is  to  be  charged  to  the  finished 
goods  account  and  credited  to  the  manufacturing  account. 

Schedule  12 

Cost  of  Sales 

The  cost  of  goods  sold,  which  amounted  to  $25,000  as 
shown  by  pricing  the  sales  at  cost,  is  to  be  charged  to  the  gen- 
eral ledger  account  and  credited  to  the  finished  goods  account. 

Schedule  13 

By-products  Sold 

The  sales  of  by-products,  which  amounted  to  $2,000,  are 
to  be  charged  to  the  general  ledger  account  and  credited  to  the 
general  factory  burden  account. 

Answer  to  Trial  Balance  of  Factory  Ledger 

General  Ledger $108,210.00 

Mahogany  Lumber $6,400.00 

Oak  Lumber 7,600.00 

Pine  Lumber s 8,200.00 

Furniture  Hardware 2,700.00 

Manufacturing 46,250.00 

Finished  Goods 35,000.00 

Factory  Supplies -. 560.00 

Loss  and  Gain  on  Mahogany  Estimates. .  600.00 

Loss  and  Gain  on  Oak  Estimates 400.00 

Loss  and  Gain  on  Pine  Estimates . .  500 . 00 


$108,210.00          $108,210.00 


JOURNAL              PAGE 

JANUARY     191 

1 

NAME  or  ACCOUNT 

CHARGE 

CREDIT 

RAW  HIDES 

2Z8A80 

TANNING  MATERIALS 

4GOOO 

WATER 

2000 

SUPPLIES 

17000 

INDIRECT  EXPENSE 

2500 

SELLING  EXPENSE 

1000 

v  ACCOUNTS  BUYABLE 

302,980 

MANUFACTURING  LABOR 

10  000 

INDIRECT  EXPENSE 

3000 

SELLING  EXPENSE. 

6000 

PAYROLL 

1QOOO 

MANUFACTURING,  MATERIALS 

226260 

INDIRECT  EXPENSE 

2000 

RAW  HIDES 

188.J60 

TANNING  MATERIAL, 

36.100 

WVTER 

2000 

SUPPLIES 

2000 

INDIRECT  EXPENSE, 

1000 

DEPRECIATION  RESERVE 

500 

INSURANCE  UNEXPIRED 

300 

TAXES    ACCRUED 

200 

— 

EXHIBIT  37. — Page  1.     Journal  Entries  for  a  Tannery. 

284 


JOURNAL.               PAGE  2 
JANUARY    191 

NAME  OF  ACCOUNT 

CHARGE 

CREDIT 

ACCOUNTS  PAYABLE 

25.000 

RWROLL. 

18.000 

INTEREST 

SOO 

CASH 

43S00 

SOLE   LEATHER 

221,330 

MANUFACTURING  MATERIAL 

204,860 

MANUFACTURING  LABOR 

9370 

INDIRECT  EXPENSE 

7/00 

COST  OF  SALES 

2Z6.  330 

SOLE  LEATHER 

226.330 

.    ACCOUNTS    RECEIVABLE 

Z9I  120 

SALES 

28QIZO 

MANUF'Q  MATERIALS  -OFFAL. 

3000 

PROFIT  AND  Loss 

Z36  830 

COST  OF  SALES 

226330 

SELLING    EXPENSE: 

12.000 

INTEREST 

soo 

SALES 

28QIZO 

PROFIT  AND  Loss 

286/20 

PROFIT  AND  Loss 

49290 

CAPITAL. 

£9290 

EXHIBIT  37. — Page  2.    Journal  Entries  for  a  Tannery. 

285 


286  PROBLEMS  IN  COST  ACCOUNTING 

COST  SYSTEM  FOR  A  TANNERY 

Example. — From  the  following  information  which  was  ob- 
tained from  the  books  of  A.  &  B.,  tanners  of  sole  leather,  open 
the  necessary  accounts  in  the  general  ledger  and  journalize  the 
transactions  reported;  post  the  journal  entries  to  the  accounts 
opened;  take  off  a  trial  balance;  close  the  books;  prepare  profit 
and  loss  account  and  balance  sheet. 

1    Cash  on  Hand $50,000 


Inventory,  Jan.  1,  1916 $100,800 

Raw  Hides 20,100 

Tanning  Materials 5,000 

Supplies — Hides  in  Process: 

Manufacturing  Materials - 73,200 

Manufacturing  Labor 5,870 

Indiret   Expense 3,400 

Sole  Leather 25,000 

Insurance  Uuexpired 1,000 


Total $234,370 


Plant $100,000 


2    Purchases  for  the  period  on  account  were  as  follows: 

Raw  Hides. $228,480 

Tanning  Materials 46,000 

Water    2,000 

Supplies 17,000 

Indirect  Expense 2,500 

Selling  Expense 7,000 


Total $302,980 


3    An  analysis  of  the  pay  roll  for  the  period  appears  as  follows: 

Manufacturing  Labor  (Hides  in  Process) $10,000 

Indirect  Expense  Labor 3,000 

Selling  Expense 5,000 


Total $18,000 


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EXHIBIT  38. — Trading  and  Profit  and  Loss  Account  for  a  Tannery. 

287 


288  PROBLEMS  IN  COST  ACCOUNTING 

4    The  report  of  the  materials  issued  from  the  storeroom  and 
of  water  used  was  as  follows : 

Raw  Hides $188,160 

Tanning  Materials 36,100 

Supplies. 2,000 

Water 2,000 


Total $228,260 


5    An  estimate  of  the  fixed  charges  for  the  period  was  as  follows : 

Depreciation $500 

Insurance 300 

Taxes...  200 


Total $1 ,000 


6    An  analysis  of  the  cost  of  sole  leather  produced  during  the 

period  was  as  follows: 
Manufacturing  Material  (Raw  Hides  less  Offal  and  Tanning 

Materials  and  Water) $204,860 

Manufacturing  Labor  (Direct  Labor  on  Hides  in  Process) . .  9,370 

Indirect  Expense  (Burden  on  Hides  in  Process) 7,100 


Total $221,330 


7    The  cost  of  sole  leather  sold  was $226,330 


8    Sales  of  sole  leather  and  offal  were  as  follows: 

Sales,  Sole  Leather $288,120 

Sales,  Offal ' 3,000 


Total $291,120 


9    The  cash  book  showed  payments  classified  as  follows: 

Accounts  Payable  Liquidated $25,000 

Pay  Rolls 18,000 

Interest  Paid . .  500 


Total..  $43,500 


EXHIBIT  39.— Balance  Sheet  for  a  Tannery. 
289 


290  PROBLEMS  IN  COST  ACCOUNTING 

JOURNAL,  LEDGER  AND  STATEMENTS 

The  preparation  of  statements  from  general  ledger  accounts 
which  are  posted  either  from  a  journal  or  books  of  original 
entry  is  an  important  part  of  an  accountant's  duty.  The  journal 
entries  which  would  appear  upon  the  books  of  a  tannery  are 
given  to  show  the  accounts  which  would  be  debited  and  credited 
when  a  cost  system  is  in  operation.  The  accounts  are  also 
shown  in  skeleton  form  as  they  would  appear  on  the  general 
ledger.  The  relation  between  the  cost  accounts  and  the  other 
accounts  appearing  on  the  books  will  readily  be  seen.  After 
the  ledger  is  closed  an  analysis  of  the  cost  accounts  is  made, 
as  well  as  a  trading  and  profit  and  loss  account  and  a  balance 
sheet.  Reference  to  the  following  exhibits  gives  the  form 
of  journal  entries  and  statements  referred  to. 

Solution 

The  solution  is  presented  in  the  following  exhibits : 

Exhibit  37,  Journal,  pages  1  and  2,  shows  how  the  trans- 
actions appear  after  being  journalized. 

Exhibit  38,  Trading  and  Profit  and  Loss  Account,  shows 
how  the  net  profit  of  $49,290  is  arrived  at. 

Exhibit  39,  Balance  Sheet,  shows  how  the  assets  and  lia- 
bilities are  set  up. 

Exhibit  40,  Analysis  of  Cost  Accounts,  shows  the  operation 
of  the  cost  accounts. 

OPENING  INVENTORY 

Raw  Hides $100,800 

Tanning  Materials 20,100 

Supplies 5,000 

Hides  in  Process 

Manufacturing  Materials 73,200 

Manufacturing  Labor 5,870 

Indirect  Expense 3,400 


S 


ACCO 

19 


YSIS  OF  COST 

OR  THE  PER  E 


CREDITS 


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EXHIBIT  40. — Analysis  of  Cost  Accounts  for  a  Tannery. 
291 


292 


PROBLEMS  IN  COST  ACCOUNTING 


Sole  Leather $25,000 

Insurance  Unexpired 1 ,000 

$234,370 

Cash $50,000 

Plant 100,000 

$384,370 

CLOSING  INVENTORY 

Raw  Hides $141,120 

Tanning  Materials 30,000 

Supplies 20,000 

Hides  in  Process 

Manufacturing  Materials 91,600 

Manufacturing  Labor 6,500 

Indirect  Expense 4,800 

Sole  Leather 20,000 

Insurance  Unexpired 700 

$314.720 

General  Ledger 

Dr.      Name                                   Cash  Cr. 

Opening  Balance $50,000     Sundries $43,500 

Balance  ...*.; 6,500 

$50,000  $50,000 

Dr.      Name                      Accounts  Receivable  Cr. 

Sales $288,120 

Offal 3,000 

$291,120 


Dr.      Name 

COSTS 
Raw  Hides 

293 
Cr. 

Inventory  

$100,800 

Manufacturing  Materials  . 
Inventory  

$188,160 
141,120 

Purchases  

228,480 

Dr.      Name 

$329,280 

$329,280 

Tanning  Materials 

Cr. 

Inventory  

$20,100 

Manufacturing  Materials 
Inventory  

$36,100 
30,000 

Purchases  

46,000 

$66,100 

$66,100 

Dr.      Name 


Water 


Cr. 


Purchases . . . 
Dr.      Name 


$2,000     Manufacturing  Materials .     $2,000 


Supplies 


Cr. 


Inventory  

$5,000 

Indirect  Expense  .... 

.  .  .     $2,000 

Purchases     

17,000 

Inventory  

...      20000 

$22,000 

$22,000 

Dr.      Name      Manufacturing  Material  (Hides  in  Process) 


Cr 


Inventory  

$73,200 

Sole  Leather  

$204,860 

Sundries  

226,260 

Offal  

3,000 

Inventory 

91  600 

$299,460 

$299,460 

Dr.      Name       Manufacturing  Labor  (Hides  in  Process) 


Cr. 


Inventory ^ $5,870 

Pay  Roll 10,000 

$15,870 


Sole  Leather. 
Inventory.  . . 


$9,370 

6,500 

» 

$15,870 


294-          PEOBLEMS  IN  COST  ACCOUNTING 
Dr.      Name  Indirect  Expense  (Hides  in  Process) 


Cr. 


Inventory $3,400 

Purchases 2,500 

Pay  Roll 3,000 

Sundries 2,000 

Sundries 1,000 


Sole  Leather 
Inventory 


$7,100 
4,800 


Dr.      Name 


$11,900 


Sole  Leather 


$11,9:30 


Cr. 


Inventory $25,000 

Sundries 221,330 


$246,330 


Cost  of  Sales $226,330 

Inventory 20,000 


Dr.      Name 


Insurance  Unexpired 


$246,330 


Cr. 


Inventory  

$1,000 

Indirect  Expense  

$300 

Inventory  

700 

$1,000 

$1,000 

Dr.      Name 


Plant 


Cr. 


Inventory . . . 
Dr.      Name 


$100,000 


Depreciation  Reserve 


Cr. 


Dr.      Name 

Accounts 

Indirect  Expense   .  .  . 

$500 

Payable 

Cr- 

Cash  

.    $25,000 

Sundries  

$302,980 

Balance  .... 

277,980 

$302,980 

$302.980 

Dr.       Name 


COSTS 
Taxes  Accrued 


295 
Cr. 


Indirect  Expense . 


Dr.      Name 


Capital 


$200 


Cr. 


Balance  

$433,660 

Inventory  

$384,370 

Profit  and  Loss  

49.290 

$433,660 

$433,660 

Dr.      Name 


Interest 


Cr. 


Cash 


$500 


Profit  and  Loss . 


Dr.      Name 


Selling  Expense 


$500 


Cr. 


Purchases  

$7,000 

Profit  and  Loss  $12,000 

Pav  Roll  

5,000 

$12,000 

$12,000 

Dr.      Name 


Cost  of  Sa'es 


Cr. 


Sole  Leather $226,330     Profit  and  Loss 


Dr.      Name 


$226,330 


Cr. 


Profit  and  Loss  .........   $288,120 


Accounts  Receivable  .....  $288,120 


Dr.      Name 


Pay  Roll 


Cr. 


Cash $18,000 


Sundries $18,000 


290 


PROBLEMS  IN  COST  ACCOUNTING 


Dr. 


Profit  and  Loss 


Cr. 


Cost  of  Sales $226,330     Sales $288,120 

Selling  Expense 12,000 

Interest 500 

Capital 49,290 

$288,120  $288,120 

TRIAL  BALANCE  BEFORE  CLOSING  BOOKS 

Debit  Credit 

Cash $6,500 

Accounts  Receivable 291,120 

Raw  Hides 141,120 

Tanning  Materials 30,000 

Supplies 20,000 

Hides  in  Process 

Manufacturing  Materials 91,600 

Manu"acturing  Labor 6,500 

Indirect  Expense 4,800 

Sole  Leather 20,000 

Insurance  Unexpired 700 

Plant 100,000 

Depreciat  on  Reserve $500 

Accounts  Payable 277,980 

Taxes  Accrued 200 

Capital 384,370 

Cost  of  Sales 226,330 

Selling  Expense 12,000 

Interest 500 

Sales. . . . .' 288,120 


Total $951,170 


$951,170 


COST  ACCOUNTS  FOR  A  LARGE  MACHINE  SHOP 

In  order  to  give  more  practice  in  the  handling  of  cost  ac- 
counts reference  will  again  be  made  to  the  mechanical  indus- 
try. The  next  problem  is  taken  from  a  large  machine  shop. 


COSTS  297 

The  data  required  for  making  the  necessary  entries  to  the  cost 
accounts  is  contained  in  the  following  schedules. 


Problem  77 
Part  1 

Design  an  accounts  payable  distribution  register  for  use  in 
a  large  machine  shop  and  provide  for  a  total  column  and  16 
other  columns-  for  distributing  purchases  as  follows: 

(1)  Materials,  (2)  labor,  (3)  building  expense,  (4)  power, 
(5)  insurance,  (6)  taxes,  (7)  repairs,  (8)  general  factory  ex- 
pense, (9)  factory  overhead,  Dept.  A,  (10)  factory  overhead, 
Dept.  B,  (11)  factory  overhead,  Dept.  C,  (12)  outbound 
freight,  (13)  shipping  expense,  (14)  selling  expense,  (15) 
general  expense,  (16)  sundries. 

Invoices  amounting  to  $19,499.71  were  received  in  Jan- 
uary from  the  following  vendors : 

Jan.  3,  1917,  voucher  1,  J.  Martin,  materials,  $7,800; 
voucher  2,  Erie  R.  R.,  incoming  freight  on  materials,  $280; 
and  voucher  3,  Adams  Express  Co.,  incoming  express  on  ma- 
terials, $4.32. 

Jan.  4,  voucher  4,  F.  Kelly,  building  expense — elevator  re- 
pairs, $58. 

Jan.  5,  voucher  5,  Bainbrel  &  Son,  fuel  $325,  oils,  $45. 

Jan.  6,  voucher  6,  A.  Colby,  insurance,  $828. 

Jan.  8,  voucher  7,  City  of  New  York,  taxes,  $1,095. 

Jan.  8,  voucher  8,  labor — pay  roll,  $1,423.07. 

Jan.  10,  voucher  9,  Western  Elec.  Co.,  repairs — supplies, 
$167,  and  miscellaneous  expenses,  $48. 

Jan.  11,  voucher  10,  Tower  Mfg.  Co.,  general  factory  ex- 
pense— sundries  for  factory  office,  $265. 

Jan.   12,  voucher  11,  Eastern  Elec.   Co.,  general  factory 


298  PKOBLEMS  IN  COST  ACCOUNTING 

expense — miscellaneous  expenses,  $14.10,  and  miscellaneous 
supplies,  $20. 

Jan.  15,  voucher  12,  labor — pay  roll,  $1,423.07. 

Jan.  17,  voucher  13,  N.  Y.,  K  H.  &  II.  E.  E.  outgoing 
freight,  $120. 

Jan.  22,  voucher  14,  labor — pay  roll,  $1,423.07. 

Jan.  24,  voucher  15,  commission  to  salesmen,  $200. 

Jan.  24,  voucher  16,  N~.  Y.  World,  selling  expenses — ad- 
vertising, $120.53. 

Jan.  29,  voucher  17,  labor — pay  roll,  $1,423.07. 

Jan.  29,  voucher  18,  general  expense — officers'  salaries, 
$400,  and  office  salaries,  $300. 

Jan.  29,  voucher  19,  selling  expense — salesmen's  salaries, 
$800. 

Jan.  31,  voucher  20,  delivery  expense — Taggart's  Express, 
$186.43. 

Jan.  31,  voucher  21,  Brooklyn  Water  Co.,  building  expense, 
$16.50,  and  power,  $38. 

Jan.  31,  voucher  22,  Tower  Mfg.  Co.,  building  expense, 
miscellaneous  materials,  $28. 

Jan.  31,  voucher  23,  Jacobs  &  Son,  power — repairs  and 
supplies,  $75. 

Jan.  31,  voucher  24,  A.  B.  Brown  Co.,  factory  overhead, 
Dept.  C,  $20 ;  shipping,  $50 ;  factory  overhead,  Dept.  A,  $30 ; 
factory  overhead,  Dept.  B,  $40. 

Jan.  31,  voucher  25,  Little,  Ives  &  Brown,  factory  over- 
head, Dept.  A,  $75.60;  factory  overhead,  Dept.  B,  $85.40; 
factory  overhead,  Dept.  C,  $61.50;  shipping,  $6.75,  and  gen- 
eral expense,  $204.30. 

Part  2 

The  plant  acquired  by  the  Akron  Mfg.  Co.  cost  as  follows : 


COSTS 


299 


Description 

Cost 

Est.  Life 
in  Yrs. 

Scrap 
Value 

Land  

$4,000.00 

Building     

10,600  00 

20 

$1,000 

Power  plant     

7,900  00 

15 

700 

Repair  Dept.,  mchy.  and  equipment  .  .  . 
Dept.  A,  mchv.  and  equipment  

1,759.60 
9,900  00 

10 
10 

160 
900 

Dept.  B,  same  

13,200  00 

10 

1,200 

Dept.  C,  same  

5.775.00 

10 

525 

Shipping  Dept.  equipment  

1,649.40 

15 

150 

General  office  equipment  

1,649.40 

15 

150 

• 

$56,433.40 

$4,785 

The  management  of  the  Akron  Mfg.  Co.  adopted  the 
straight-line  method  as  the  basis  for  writing  off  depreciation. 

From  the  above  data  compute  the  depreciation  for  the  month 
of  January,  1917,  and  make  the  journal  entry  necessary  to 
charge  the  proper  accounts  on  the  general  ledger,  and  credit  the 
depreciation  reserve  account. 

Part  3 

The  Akron  Mfg.  Co.  had  $86,460  worth  of  insurance  poli- 
cies in  force  as  follows: 


Date  of 
Policy 

No.  of 
Policy 

Name  of  Insurer 

Terrain 
Years 

Amount 
of  Risk 

Total 
Premium 

1915 

Jan.  2 

111579 

London  Globe 

5 

$10,000 

$500 

Jan.  2 

276231 

Mutual  Casualty 

5 

10,000 

500 

Jan.  2 

442732 

Hartford  Fire 

3 

20,000 

600 

Jan.  2 

471600 

London  Globe 

3 

20,000 

450 

1916 

Jan.  2 

100795 

Aetna  Fire 

3 

20,000 

600 

Jan.  2 

100796 

Aetna  Fire 

2 

6,400 

228 

$86,400 

$2,878 

300  PKOBLEMS  IN  COST  ACCOUNTING 

The  plant  was  appraised  as  follows  for  insurance  purposes 

Building $14,400 

Power  plant 9,600 

Repair  Dept 2,400 

Factory  Dept.  A 14,400 

Factory  Dept.  B 19,200 

Factory  Dept.  C 8,400 

Shipping  Dept 1,200 

General  office 16,800 


$86,400 

From  the  above  data  compute  the  amount  of  the  insurance 
expiration  for  January,  1917,  and  make  the  journal  entry 
necessary  to  charge  the  proper  accounts  on  the  general  ledger, 
and  credit  the  insurance  account. 

Part  4 

The  taxes  for  the  year  1917  were  estimated  to  be  equal  to 
$10  a  thousand  on  an  assessed  valuation  of  $113,100,  divided 
as  follows: 

% 

Land  and  buildings $24,000 

Power  plant 12,000 

Repair  Dept 3,000 

Factory  Dept.  A 18,000 

Factory  Dept.  B 24,000 

Factory  Dept.  C 10,500 

Shipping  Dept 1,500 

General  office 20,100 


$113,100 

From  the  above  data  compute  the  taxes  for  the  month  of 
January,  1917,  and  make  the  journal  entry  necessary  to  charge 
the  proper  accounts  on  the  general  ledger,  and  credit  the  taxes 
account. 


301 

Part  5 

A  summary  of  the  stores  requisitions  for  January,  1917, 
shows  that  materials  to  the  amount  of  $6,484.32  were  issued. 
Prepare  the  necessary  journal  entry  to  charge  the  work  in 
process  account  for  materials. 

Part  6 

An  analysis  of  the  January,  1917,  wages  pay  roll  was 
made,  with  the  following  results : 


Charge  Account 

Total  Pay  Roll 

Distribution 

Direct 

Indirect 

Work  in  process  

$4,644.67 
185.00 
300.00 
356.40 
92.60 
246.50 
251.20 
185.70 
117.00 

$4,644.67 

Building  expense  

$185.00 
300.00 
356.40 
92.60 
246.50 
251.20 
185.70 
117.00 

Power         

Repairs                   

General  factory  expense 

Factory  overhead,  Dept.  A  

Factory  overhead,  Dept.  B  

Factory  overhead,  Dept.  C     .... 

Shipping  

$6,379.07 

$4.644.67 

$1734.40 

Prepare  the  necessary  journal  entry  to  distribute  the  labor 
to  the  proper  general  ledger  accounts. 

Part  7 

An  analysis  of  the  repairs  made  during  January,   1917, 
gives  the  following  distribution: 

Building  expense $65 . 00 

Factory  overhead,  Dept.  A 159.00 

Factory  overhead,  Dept.  B 247 .80 

Factory  overhead,  Dept.  C 115.43 

Shipping 2.00 


Total..  .  $589.23 


302          PROBLEMS  IN  COST  ACCOUNTING 

Prepare  the  necessary  journal  entry  to  distribute  the  repairs 
to  the  proper  general  ledger  accounts. 

Part  8 

A  report  of  power  consumption  and  cost  appeared  as  fol- 
lows for  January,  1917: 

Building  expense $84 . 10 

Factory  overhead,  Dept.  A 252.30 

Factory  overhead,  Dept.  B 336 . 40 

Factory  overhead,  Dept.  C 168 . 20 


$841.00 

Prepare  the  necessary  journal  entry  to  distribute  the  power 
to  the  proper  general  ledger  accounts. 

Part  9 

A  pro  rata  distribution  of  the  building  expense  account 
for  January,  1917,  is  as  follows: 

General  factory  expense $76 . 29 

Factory  overhead,  Dept.  A 101 .72 

Factory  overhead,  Dept.  B 127 . 15 

Factory  overhead,  Dept.  C 101 . 72 

Shipping 50.86 

General  expense  office 50 . 86 


Total  bldg.  expense $508.60 

Prepare  the  necessary  journal  entry  to  distribute  the  build- 
ing expense  to  the  proper  ledger  accounts. 

Part  10 

An  analysis  of  the  general  factory  expense  account  gives 
the  following  distribution  for  January,  1917 : 


t!OSTS 

Factory  overhead,  Dept.  A $155.90 

Factory  overhead,  Dept.  B 207.79 

Factory  overhead,  Dept.  C 104 . 30 


303 


$467.99 

Prepare  the  necessary  journal  entry  to  distribute  the  gen- 
eral factory  expense  to  the  proper  general  ledger  accounts. 

Part  11 

During  the  month  of  January,  1917,  there  was  done  produc- 
tive work  as  follows  in  Departments  A,  B  and  C,  at  the  rates 
shown  for  factory  overhead: 


Department 

Productive 
Hours 

Rate  per  Hour 
for  Overhead 

A    

1,802 

$.67 

B  

2,523 

.52 

C  

4,418 

.15 

Prepare  the  necessary  journal  entry  to  distribute  the  fac- 
tory burden  in  Departments  A,  B  and  C  to  the  work  in  process 
account  for  January,  1917. 

The  "undistributed  factory  overhead"  in  Departments  A, 
B  and  C  is  to  be  carried  by  journal  entry  to  an  account  called 
reserve  for  overhead. 

Part  12 

The  cost  of  the  goods  finished  in  January,  1917,  amounted 
to  $12,086.13,  and  is  to  be  carried  by  journal  entry  from  the 
work  in  process  account  to  the  finished  goods  account. 

Part  13 

The  cost  of  sales  for  January,  1917,  amounted  to  $8,801.53, 
and  the  cost  of  returns,  $597.12.  Prepare  the  necessary  journal 


304          PROBLEMS  IN  COST  ACCOUNTING 

entry  to  charge  the  trading  account  for  the  cost  of  sales,  and 
credit  it  for  the  cost  of  returns. 

Part  14 

The  sales  for  January,  1917,  amounted  to  $13,485.60,  and 
the  return  sales,  $865.20.  The  sales  allowances  made  custom- 
ers amounted  to  $50,  and  the  out-freight,  $120  in  January. 
Prepare  the  necessary  journal  entry  to  make  the  proper  charges 
and  credits  to  the  sales,  accounts  receivable,  sales  allowances, 

and  out-freight  accounts. 

Part  15 

The  discount  on  purchases  amounted  to  $165.40  in  Jan- 
uary, 1917,  and  the  discount  on  sales  to  $95.00.  Bad  debts 
amounted  to  $64.00.  Prepare  the  necessary  journal  entries. 

Part  16 

The  cash  book  footings  for  January  showed  that  $9,875 
was  received  from  customers  and  $15,350.50  was  paid  to  ven- 
dors to  liquidate  accounts  payable.  The  discount  on  purchases 
amounted  to  $165.40.  Set  up  the  form  necessary  for  a  cash 
book  and  indicate  how  the  footings  would  appear.  Write  $70 
off  to  the  Reserve  for  Bad  Debts  account. 

Parti? 

Close  the  reserve  for  overhead  into  the  trading  account. 
Close  the  following  accounts  into  Profit  and  Loss  accounts: 
Trading,  Discount  on  Purchases,  Shipping,  Selling,  General 
Expense,  and  Discount  on  Sales.  Carry  the  net  profit  to  sur- 
plus by  means  of  the  necessary  journal  entries. 

Part  18 

At  the  first  of  January  the  following  balances  appeared 
on  the  books  of  the  company : 


COSTS  305 

Dr.  Cr. 

Materials 

Balance $3,000.00 

Depreciation  Reserve 


Balance $1,240.00 

Work  in  Process 


Balance $2,000.00 

Finished  Goods 


Balance $3,754.00 

Received  for  Bad  Debts 


Balance $125.00 

Accounts  Receivable 


Balance $6,000.00 

Accounts  Payable 


Balance $6,250.00 

Cash 


Balance.     .    .$17,061.00 

Land 


Balance $100,000.00 

Buildings 


Balance $10,600.00 

Power  Plant 


Balance $7,900.00 

Machinery  and  Equipment 


Balance $33,933.40 

Capital  Stock 


Balance $1CO,000  00 

Unissued  Stock 


Balance $15.000.00 

Surplus 


Balance. . . .  (use  your  own  figures) 


CHAPTER  XV 


ESTIMATING   COST   SYSTEM 

There  are  factories  where  it  is  impracticable  to  keep  the 
cost  on  each  job  or  process  and  so  it  is  necessary  to  adopt  the 
plan  of  estimating  the  costs  and  of  proving  up  the  estimates 
with  the  books.  In  order  to  operate  the  system  it  is  necessary 
to  have  a  schedule  which  shows  the  amount  of  the  material, 
labor  and  overhead  expense  on  each  article  manufactured.  The 
inventory  is  priced  according  to  the  schedule  and  is  used  in 
opening  and  closing  the  books.  Inasmuch  as  costs  are  based 
on  an  estimate  there  will  be  more  or  less  of  an  adjustment  to 
be  made  in  the  cost  accounts  when  closing  the  books.  The 
needle  industries  furnish  a  good  example  of  manufactories 
where  the  factory  operations  are  of  such  a  short  duration  that 
it  is  generally  impractical  to  keep  the  time  on  individual  jobs. 
The  method  of  operating  an  estimating  cost  system  will  readily 
be  seen  from  the  following  example: 

Example. — A  manufacturing  firm  has  the  following  schedule 
for  estimating  the  factory  costs: 


Article 

Total 

Material 

Labor 

Overhead 

A  

$2.95 

$1.60 

$.50 

$.50 

B  

3.75 

2.00 

.85 

.85 

C  

4.50 

2.25 

1.01 

1.01 

D    

5.25 

2.70 

1.50 

1.50 

E  

6.00 

3  00 

1  50 

1.50 

F  

8.10 

4.50 

2.00 

2.00 

G  

11  00 

5.00 

3.00 

3.00 

306 


COSTS 


307 


The  inventory  Jan.  1,  1916,  showed  the  following: 


Quantity 


Article 


Material 


Labor 


Overhead 


500. 
450. 
400. 
350. 
300. 
250. 
100. 


A 
B 
C 
D 
E 
F 
G 


SI.  60 
2.00 
2.25 
2.70 
3.00 
4.50 
5.00 


$  50 
85 
1.01 
1.50 
1.50 
2.00 


$  50 
85 
1.01 
1.50 
1.50 


3.00 


2  00 
3.00 


The  expenditures  for  the  year  were: 

Purchases  Material $27,501 .00 

Direct  Labor 12.600.00 

Indirect  Expense '. 11,700.00 

The  sales  for  1916  were  as  follows: 

Quantity  Article  Selling  Price 

3,000 A  $3.75 

2500 B  4.80 

2,000 C  5.00 

1,500 D  600 

1,000 E  7.00 

800 F  9.00 

500 G  14.00 

The  inventory  Dec.  31,  1916,  was  as  follows: 

Quantity Style 

410     A 

600     B 

500     C 

150     D 

75     E 

320     F 

200     G 

Design  the  three  forms  necessary  to  enter  the  estimated  cost 
Inventory,  Jan.  1,  1916. 

Cost  of  Sales. 
Inventory,  Dec.  31,  1916. 


308 


PROBLEMS  IN  COST  ACCOUNTING 


Open  the  necessary  accounts  to  show  the  elements  of  cost, 
sales,  cost  of  sales,  and  profit  and  loss.  Make  the  necessary 
adjustments  of  differences  between  estimated  cost  and  actual 
costs.  The  General  Ledger  Account  is  to  be  the  balancing 
account  for  journal  entries  when  one  debit  or  credit  only  affects 
the  factory  accounts.  All  entries  are  to  be  journalized. 


Solution 

INVENTORY 


Date,  Jan.  1,  1916 


Quantity 

Article 

Material 

Labor 

Indirect  Expense 

Each 

Total 

Each 

Total 

Each 

Total 

500 

A 

$1.60 

$800.00 

$.50 

$250.00 

$.50 

$250.00 

450 

B 

2.00 

900.00 

.85 

382.50 

.85 

382.50 

400 

C 

2.25 

900.00 

1.01 

404.00 

1.01 

404.00 

350 

D 

2.70 

945.00 

1.50 

525.00 

1.50 

525.00 

300 

E 

3.00 

900.00 

1.50 

450.00 

1.50 

450.00 

250 

F 

4.50 

1,125.00 

2.00 

500.00 

2.00 

500.00 

100 

G 

5.00 

500.00 

3.00 

300.00 

3.00 

300.00 

Total.  .  . 

$6,070.00 

$2,811.50 

$2,811.50 

COST  OF  SALES 

Year  End.:d  Dae.  31,  1916 


Quantity 

Article 

Material 

Labor 

Indirect  Expense 

Each 

Total 

Each 

Total 

Each 

Total 

3,000 

A 

$1.60 

$4,800 

$.50 

$1,500 

$.50 

$1,500 

2,500 

B 

2.00 

5,000 

.85 

2,125 

.85 

2,125 

2.000 

C 

2.25 

4,500 

1.01 

2,020 

1.01 

2,020 

1,500 

D 

2.70 

4,050 

1.50 

2,250 

1.50 

2,250 

1,000 

E 

3.00 

3,000 

1.50 

1,500 

1.50 

1,500 

800 

F 

4.50 

3,600 

2.00 

1,600 

2.00 

1,600 

500 

G 

5.00 

2,500 

3.00 

1,500 

3.00 

1,500 

Total.  .  . 

$27,450 

$12,495 

$12,495 

COSTS 


309 


INVENTORY 


Date,  Dec.  31,  1916 


Quantity 

Article 

Material 

Labor 

Indirect  Expenes 

Each 

Total 

Each 

Total 

Each 

Total 

410 

A 

$1.60 

$656.00 

$.50 

$205.00 

$.50 

$205.00 

600 

B 

2.00 

1,200.00 

.85 

510.00 

.85 

510.00 

500 

C 

2.25 

1,125.00 

1.01 

505.00 

1.01 

505.00 

150 

D 

2.70 

405.00 

1.50 

225.00 

1.50 

225.00 

75 

E 

3.00 

225.00 

1.50 

168.75 

1.50 

168.75 

320 

F 

4.50 

1,440.00 

2.00 

640.00 

2.00 

640.00 

200 

G 

5.00 

1,000.00 

3.00 

600.00 

3.00 

600.00 

Total.  .  . 

$6,051.00 

$2,853.75 

$2,853.75 

SALES       Year  Ended  Dec.  31,  1916 


Quantity 

Article 

Selling  Price 

Amount 

3,000       

A 

$  3.75 

$11,250.00 

2,500  

B 

4.80 

12,000.00 

2,000  

C 

5.00 

10,000.00 

1,500  

D 

6.00 

9,000.00 

1,000  

E 

7.00 

7,000.00 

800  

F 

9.00 

7.200.00 

500  

G 

14.00 

7,000.00 

Total  

$63,450.00 

JOURNAL 


Date  Dec.  31,  1916 


Charge 

Credit 

Opening  Inventory 
Material  

$6,070.00 

' 

Labor  

2,811.50 

Indirect  Expense  

2,811.50 

General  Ledger  Account  

$11,693.00 

310 


PROBLEMS  IN  COST  ACCOUNTING 


Charge 

Credit 

2 
Material,  Purchases  

$27,501.00 

Direct  Labor  

12,600.00 

Indirect  Expense  

11,700.00 

General  Ledger  Account  

$51  801  00 

3 
Cost  of  Sales  

$52,440  00 

Material     

$27,450  00 

Labor  

12495  00 

Indirect  Expense  

12,495  00 

4 
Closing  Inventory 
General  Ledger  Account  

$11,758.50 

Material  

$6051  00 

Labor  

2,853  75 

Indirect  Expense  

2853  75 

5 
Cost  of  Sales  

$132  75 

Material,  Adjustment  

$70  00 

Labor,  Adjustment     

62  75 

Indirect  Expense  

837  25 

Cost  of  Sales     

837  25 

6 

General  Ledger  Account  

$63  450  00 

Sales                           

$63  450  00 

7 
Profit  and  Loss  

$51,737.50 

Cost  of  Sales  

$51,737.50 

Sales  

63,450.00 

Profit  and  Loss  

63,450.00 

8 
Profit  and  Loss  

$11,714.50 

General  Ledger  Account        ......... 

$11,714  50 

COSTS 


311 


Dr.        Name 


Factory  Ledger  Accounts 

Material 


Cr. 


Inventory 

$6,070.00 

Cost  of  Sales  

....  $27,450.00 

Purchases  

27,501.00 

Inventory  

6,051.00 

Adjustment 

70.00 

$33,571.00 

$33,571.00 

Dr.      Name 


Labor 


Cr. 


Inventory 

.    $2,811.50 

Cost  of  Sales  

$12,495.00 

Dir  Labor 

12600  00 

Inventory  

2,853.75 

Adjustment  

62.75 

$15,411.50 

$15,411.50 

Dr.      Name 


Indirect  Expense 


Cr. 


Inventory  

..    $2,811.50 

Cost  of  Sales  

$12,495.00 

Indirect  Expense 

11700  00 

Inventory     

2,853.75 

Adjustment  

837.25 

$15,348.75 


$15,348.75 


Dr.      Name 


Sales 


Cr. 


Profit  and  Loss $63,450 . 00 


Sales $63,450.00 


Dr.      Name 


Cost  of  Sales 


Cr. 


Material  

..  $27,450.00 

Adjustment  on 

Indirect 

Adj  .  on  Mat  

70.00 

Expense  

$837.25 

Labor  

.  .  .    12,495  00 

Adj.  on  Labor  

62.75 

Indirect  Expense 

.  .  .    12,495  00 

Profit  and  Loss 

51,735.50 

$52,572.75 

$52,572.75 

312  PROBLEMS  IN  COST  ACCOUNTING 

Dr.      Name  Profit  and  Loss 


Cr. 


Cost  of  Sales $51,735.50 

Surplus,  Gen.  L.  Acct. .    11,714.50 


$63,450.00 


Sales $63,450.00 


5.450  00 


Dr.      Name 


General  Ledger  Account 


Cr. 


Inventory . 
Sales.  . 


$11,758.50 
63,450.00 


$75,208.50 


Inventory $11,693.00 

Purchases  Mat 27,501 . 00 

Direct  Labor 12,600 . 00 

Indirect  Expense 1 1,700 . 00 

Profit  and  Loss 11,714 . 50 


$75,208.50 


Problem  78 

A  hosiery  manufacturer  has  the  following  schedule  for  esti- 
mating the  factory  costs : 


Cost  per  Dozen  Pair 


Total 

Material 

Labor 

Overhead 

100        

$1.75 

$1.00 

$.50 

$.25 

no        

2.15 

1.25 

.60 

.30 

120         

2.55 

1.50 

.70 

.35 

130  

3.50 

2.00 

1.00 

.50 

145  

4.30 

2.50 

1.20 

.60 

160   

5.10 

3.00 

1.40 

.70 

The  inventory  Jan.  1,  1917,  showed  the  following: 


Quantity  Dozen  Pairs 

Style 

Material 

Labor 

Overhead 

1,000  

100 

$1.00 

$.50 

$.25 

2,500  

110 

1.25 

.60 

.30 

500  

120 

1.50 

.70 

.35 

2,000  

130 

2.00 

1.00 

.50 

1.200  

145 

2.50 

1.20 

.60 

900  

160 

3.00 

1.40 

.70 

COSTS  313 

The  expenditures  for  the  year  were: 

Purchases,  Material $153,825.00 

Direct  Labor    74,445.00 

Indirect  Expense 37,447 .50 

The  sales  for  January,  11)17,  were  as  follows: 

Quantity  Selling  Price 

Doz.  Pairs  Style        Per  Doz.  Pair 

10,000  100  $3.00 

20,000  110  3.25 

5,000  120  3.50 

25,000  130  4.00 

15,000  145  5.00 

10,000  160  6.00 

The  inventory  on  Jan.  31,  1917,  was  as  follows: 

Quantity 
Doz.  Pairs  Style 

800 100 

1,200  110 

250  120 

500  130 

1,000  145 

750  160 

Design  the  forms  required  and  open  the  necessary  accounts 
to  show  the  elements  of  cost,  sales,  cost  of  sales,  and  profit 
and  loss.  Also  make  the  necessary  adjustments  of  differences 
between  estimated  costs  and  actual  costs.  The  General  Ledger 
Account  is  to  be  used  as  the  balancing  account  for  journal 
entries  when  one  debit  or  credit  only  affects  the  factory  ac- 
counts. All  entries  are  to  be  journalized. 


CHAPTER  XVI 

COSTS  IN  THE  BRICK  MANUFACTURING  AND  COPPER 
MINING  INDUSTRIES 

When  the  United  States  Government  conducts  an  investiga- 
tion into  the  cost  of  manufacture  of  an  industry  producing  a 
standard  product  it  i&  the  practice  tk  furnish  field  agents  with 
schedules  to  be  filled  in  with  data  pertaining  to  the  purchases, 
pay  rolls,  fixed  charges,  production,  and  so  on.  In  order  to 
present  this  form  of  analysis  to  the  student,  reference  is  made 
to  the  procedure  followed  in  ascertaining  the  cost  of  manufac- 
turing brick.  In  the  following  example  it  will  be  seen  that 
separate  schedules  are  prepared  for  the  purpose  of  analyzing 
purchases,  pay  rolls,  fixed  charges  and  production. 

Example. — From  the  data  contained  in  the  following  sched- 
ules make  a  calculation  of  the  cost  per  1,000  of  manufacturing 
brick  for  the  month  of  January,  1917.  Also  set  up  a  statistical 
summary  showing  the  cost  per  1,000  by  individual  processes. 

Schedule  1 — Purchases 

(b)    General  office  expense $87 . 56 

(d)    Salesmen's  traveling  expense 125 . 00 

Plant  office  expense 
2.  Expense 10.00 

Cost  of  shale  dumped  in  shale  room 

7.  Explosives 40.00 

8.  Sundry  invoices 21 . 00 

Cost  of  brick  in  dryer     . 

13.  Invoices 23.98 

314 


COSTS  315 

Dryer 

15.           Sundry  invoices .' $4 . 20 

Burning 

21.  Sundry  invoices 10 . 66 

22.  Fuel 581.21 

Power 

28.           Current 272.50 

Plant  maintenance 

30.           Sundry  invoices 8 . 55 

Railroad  maintenance 

32.           Sundry  invoices .• 13.42 

Plant  construction 

36.  Sundry  invoices 64.25 

House  construction 

37.  Sundry  invoices 52.74 

Farm 

40.           Seed..  57.08 


Total $1,372.15 


Schedule  2 — Pay  Roll  Recapitulation  Sheet,  January,  1917 

(a)    General  office  salaries $300 .00 

(c)    Salesmen's  salaries 150 . 00 

Plant  office  expense 

1.           Labor 37.15 

Cost  of  shale  dumped  in  shale  room 

3.  Foreman 47.00 

4.  Labor 159.16 

6.            Stripping 4.00 

Cost  of  brick  put  in  dryer 

9.           Inside  foreman 46.07 

10.  Dry  pan  man 30. 14 

11.  Pugger 30.14 

12.  Machine  belt  and  transfer  man  130 . 96 

Dryer  , 

14.           Labor..  26.26 


316  PKOBLEMS  IN  COST  ACCOUNTING 

Setting 

16.  Cost  of  brick  from  cooling  shed  to  kiln $223 . 14 

Burning 

17.  Foreman 50 .00 

18.  Fireman 137.20 

19.  Repairing 32 .40 

20.  Labor 25.10 

23.  Cartage 61.14 

Wheeling 

24.  Foreman 35.00 

25.  Wheelers 288.71 

26.  Day  men 28.44 

31.           Plant  maintenance 33 . 18 

33.  Labor 10.22 

Superintendence 

34.  Labor 75.00 

Plant  Construction 

35.  Labor 78.10 

House  Construction 

37.           Labor 13.88 

Farm  Account 

39.           Labor..  19.07 


Total $2,071 . 46 


Schedule  3 — Fixed  Charges 

Insurance $50 .00 

Taxes 24.50 

Interest  on  borrowed  money 50 . 00 

Depreciation 208.33 


Total. .  .  $332.83 


Schedule  4 — Production 
Brick  manufactured  during  period,  500,000. 


COSTS 
Solution 


317 


COST  OF  MANUFACTURING  BKICK  FOB  MONTH  OF  JANUARY,  1917 


Total 

Cost  per  1,000 

General 
General  office  salaries            

$300  00 

$  600 

Office  and  general  expense  

87.56 

.175 

Salesmen's  salaries  

150.00 

300 

Salesmen's  traveling  expense  

125.00 

250 

Insurance     

50.00 

.100 

Taxes             

24.50 

.049 

Interest  on  borrowed  money  

50  00 

.100 

Depreciation     

208  33 

416 

Plant  office  expense         

47  15 

094 

Cost  of  shale  dumped  in  shale  room  

271  .  16 

.542 

Cost  of  brick  put  in  dryer  

261  .  29 

.522 

Dryer  

30.46 

.061 

Setting  

223  .  14 

.446 

Burning  

897.71 

1.795 

Wheeling     

352  .  15 

.704 

Power  

272.50 

.545 

Plant  maintenance  

41.73 

083 

Railroad  maintenance  

23.64 

047 

Superintendence  

75  00 

.150 

Sub-total  

$3,491.32 

$6.979 

Plant  construction  ....*.  

142.35 

House  construction  

66.62 

Farm  account       

76.15 

Grand  total  

$3,776.44 

The  same  method  of  procedure  can  be  followed  in  arriving 
at  the  cost  per  ton  of  copper  ore  mined  and  stamped.  The 
data  necessary  for  making  the  calculation  is  presented  in  the 
following  problem : 


318  PEOBLEMS  IX  COST  ACCOUNTING 

Problem  79 

From  the  data  contained  in  the  following  schedules  make 
a  calculation  of  the  cost  per  ton  of  copper  ore  mined  and  stamped 
at  the  Lone  Wolf  mine  for  the  year  ending  Dec.  31,  1917. 

There  are  four  main  classifications  of  work  expense  known 
as  (1)  underground  expense,  (2)  rock  house,  (3)  stamp  mill, 
and  (4)  surface  and  incidental  expense.  It  is  desired  to  ascer- 
tain the  cost  per  ton  of  ore  mined  and  stamped  under  each  of 
these  four  main  headings. 

Schedule  1 — Purchases 

Underground  Expense 
Contract  work 

Sinking  450  ft.  of  shaft  at  $17.88  per  foot. 
Drifting  4,993  ft.  at  100  foot  levels  at  $5.68  per  foot. 
Stopping  23,175  fathoms  at  $7.69  per  fathom. 

Supplies  and  fuel $19,107.47 

Electric  light 291.88 

Rock  house 

Teaming,  etc $808.30 

Electric  light 1,167 . 12 

Fuel 2,160.00 

Supplies 3..621 .29 

Stamp  mill 

Transportation $55,053 . 35 

Supplies 6,008.72 

Electric  light '. 3,910.00 

Fuel  and  teaming 26,816.00 

Surface  and  incidental  expenses 

Supplies $9,523.51 

Telephone  and  telegraph 495 . 28 

Taxes  and  insurance 48,938 . 14 

Freight  on  mineral 5,948 . 28 


COSTS  319 

Schedule  2 — Pay  Roll  Analysis 

Underground  expense 

General  labor $1,546 . 55 

Timbering 5,286.60 

Mining  captains  and  miners 29,151 . 80 

Mechanics 7,833 . 15 

Hoisting  and  pumping  22,092 . 51 

Compressor 29,774.52 

Teaming 1,095 . 95 

Rock  house 

General  labor $13,371 .85 

Machinists 1,166.28 

Stamp  mill 

General  labor $27,632.80 

Machinists 4,318.90 

Pumping 7,599.78 

Surface  and  incidental  expense 

Superintendent  and  labor $20,309.57 

Pay  roll  deductions  for  rent  amount  to  $6,547 . 90 

Schedule  3 — Profits  on  Supplies 

The  profits  on  supplies  sold  contractors  doing  work  charge- 
able to  underground  expense  amount  to  $65,416. 

» 
Schedule  4 — Amortization  and  Interest 

The  original  cost  of  the  property  was  $780,000,  and  is  to 
be  amortized  by  making  an  annual  charge  of  5  per  cent.  In- 
terest on  the  cost  of  the  property  is  also  to  be  included  in  the 
cost  calculations  at  4  per  cent  per  annum. 

Schedule  5 — Production 

The  rock  mined  and  stamped  during  the  year  was  344,062 
tons. 


320          PROBLEMS  IN  COST  ACCOUNTING 

The  use  of  schedules  for  the  purpose  of  arriving  at  the 
cost  of  production,  as  outlined  in  the  foregoing  pages,  constitutes 
a  useful  method  of  calculation  when  conducting  an  investiga- 
tion, but  does  not,  of  course,  answer  the  requirements  of  a  com- 
plete cost  system. 


CHAPTER  XVII 

EXAMINATION  QUESTION,   COST  ACCOUNTS  IN  THE 
PORTLAND  CEMENT  INDUSTRY 

In  the  problem  presented  in  this  chapter  reference  is  made 
to  the  Portland  cement  industry.  The  necessary  data  is  given  to 
enable  the  student  to  open  all  of  the  accounts  on  the  General 
Ledger,  calculate  the  cost  of  production  and  to  close  the  manu- 
facturing and  trading  accounts.  After  these  accounts  are  closed 
a  trial  balance  can  be  taken  off  from  the  General  Ledger,  and 
Trading  and  Profit  and  Loss  Account,  Statement  of  Monthly 
Operation  Costs,  and  Balance  Sheet  prepared.  A  brief  explana- 
tion of  the  procedure  followed  in  handling  the  manufacturing 
accounts  will  help  to  make  the  problem  clear. 

The  manufacture  of  Portland  cement  is  a  continuous  process 
and  consequently  the  costs  obtained  are  average  costs  for  the 
period.  In  this  case  the  period  covered  is  one  month.  It  is  as- 
sumed that  the  A.  B.  C.  Portland  Cement  Company  is  oper- 
ating on  the  dry  process,  using  coal  as  a  fuel  and  cement  rock 
(Raw  Material  No.  1)  and  limestone  (Raw  Material  No.  2) 
as  materials.  The  procedure  outlined  follows  that  recommended 
by  the  Committee  on  Uniform  Cost  Accounting  of  the  Port- 
land Cement  Association. 

Raw  Material  No.  1     (Cement  Rock)  Account 
Raw  Material  No.  2    (Limestone)       Account 

To  these  accounts  are  charged  all  items  relating  to  the  cost 
of  cement  rock  and  limestone,  whether  mined  or  quarried.  At 
the  end  of  the  month  the  cost  of  raw  material  consumed  is 
transferred  to  the  Raw  Grinding  account.  The  balance,  repre- 
senting the  inventory,  is  carried  down  to  next  month's  operations. 

321 


322  PKOBLEMS  IN  COST  ACCOUNTING 


RAW  GRINDING  ACCOUNT 

This  account  is  charged  for  the  cost  of  all  cement  rock  and 
limestone  consumed  and  also  for  the  cost  applicable  to  the  grind- 
ing process.  The  total  cost  of  grinding  for  the  month  is  trans- 
ferred to  the  Clinker  Burning  account. 

CLINKER  BURNING  ACCOUNT 

The  cost  of  all  raw  material  prepared  in  the  raw  grinding 
account  is  charged  to  this  account  together  with  such  items  as 
are  assessed  against  the  clinker  burning  process.  At  the  end  of 
the  month  the  clinker  ground  is  charged  to  the  Clinker  Grinding 
account,  the  balance  remaining  in  the  Clinker  Burning  account 
representing  the  clinker  inventory  carried  to  the  next  period. 

CLINKER  GRINDING  ACCOUNT 

To  the  cost  of  the  clinker  transferred  from  the  Clinker  Burn- 
ing account  is  added  all  costs  incurred  in  connection  with  the 
clinker  grinding  process.  The  Clinker  Grinding  account  is 
closed  at  the  end  of  the  month  into  Finished  Cement  account. 
Up  to  this  point  we  have  obtained  the  direct  cost  of  production. 
There  are  now  certain  expense  items  to  consider. 

MILL  OVERHEAD  ACCOUNT 

All  items  of  cost  not  directly  chargeable  to  one  of  the  proc- 
esses previously  mentioned  are  chargeable  to  Mill  Overhead  ac- 
count, with  the  exception  of  certain  reserves.  The  account  is 
closed  into  the  Finished  Cement  account  at  the  end  of  the  month. 

RESERVES  (EXPENSE)  ACCOUNT 

It  is  the  plan  to  debit  all  fixed  charges  for  which  reserves 
are  set  up  to  this  account.  This  account  is  closed  out  to  Fin- 
ished Cement  account  at  the  end  of  the  month.  Up  to  this  point 
we  have  all  of  the  charges  making  up  the  bin  cosL 


COSTS  323 


FINISHED  CEMENT  ACCOUNT 

From  the  foregoing  it  will  be  seen  that  Finished  Cement  ac- 
count has  been  charged  for  all  items  of  cost  making  up  the  bin 
cost.  At  the  end  of  the  month  the  balance  to  the  account  rep- 
resenting the  bin  cost  is  transferred  to  the  Cement  Inventory 
account. 

AUXILIARY  COST  ACCOUNTS 

It  is  necessary  to  keep  certain  auxiliary  cost  accounts  for 
the  purpose  of  obtaining  the  cost  of  various  services  rendered. 
At  the  close  of  the  month  these  accounts  are  closed  into  the  cost 
accounts. 

POWER,  LIGHT  AND  WATER  ACCOUNT 

All  expense  incurred  in  connection  with  supplying  power, 
light  and  water  is  charged  to  this  account,  and  at  the  end  of  the 
month  the  account  is  closed  into  the  various  processes  on  the 
basis  of  the  service  rendered  each. 

COAL  PREPARING  ACCOUNT 

To  this  account  is  charged  all  unground  coal  or  crude  oil,  and 
all  expense  incident  to  preparing  coal  for  the  kilns.  At  the  end 
of  the  month  the  balance  of  the  account  is  closed  into  the  Clinker 
Burning  account  as  a  fuel  charge. 

MACHINE  SHOP  ACCOUNT 

All  expenses  incurred  in  connection  with  the  operation  of 
the  machine  shop  are  charged  to  this  account  and  at  the  end  of 
the  month  the  balance  to  the  account  is  closed  out  to  the  various 
processes  accounts. 

FLOATING  GANG  ACCOUNT 

The  labor  cost  and  expense  of  the  floating  gang  is  charged  to 
this  account  and  at  the  end  of  the  month  the  account  is  closed 
out  to  the  various  departmental  accounts  on  the  basis  of  the 
work  performed  during  the  period. 


324 


PROBLEMS  IN  COST  ACCOUNTING 


Problem  80 

From  the  data  contained  in  the  following  schedules  open  all 
of  the  accounts  on  the  General  Ledger  of  the  A.  B.  C.  Portland 
Cement  Company  and  make  the  necessary  entries  to  the  ac- 
counts opened. 

Schedule  1 

The  A.  B.  C.  Portland  Cement  Company.  Trial  Balance 
of  General  Ledger  after  closing  the  books  as  at  December  31, 
1917: 


111 

Cash  in  Banks  — 
First  National         

$50,000  00 

112 

Second  National        

114,500  00 

121 

Petty  Cash- 
General  Office  

125.00 

122 

Mill  Office    

125  00 

130 

Bills  Receivable  

5,000.00 

141 

Accounts  Receivable  — 
Customer's  Ledger  

130,000.00 

142 

Advances  to  Salesmen  

250.00 

151 

Inventory  — 
Cement  

62,250.00 

152.1 

Supplies  —  Stores  Ledger  

30,000.00 

152  2 

Supplies  —  Gypsum          

10,000  .  00 

152  3 

Supplies  —  Explosives        

10,000  .  00 

153  1 

Coal—  Kiln  

7,800.00 

153  2 

Coal  —  Steam            

20,000  .  00 

154  1 

Bags  —  Cloth  —  New  

100,000.00 

154.2 
154  3 

Bags  —  Cloth  —  Second  Hand  .  .  . 
Bags  —  Paper      

10,000.00 
15,000.00 

160 

Investments     ;  

20,000.00 

i 

171 

Mill  Buildings          

250,000.00 

172 

Mill  Machinery         

800,000.00 

173 

Mill  Land   

10,000.00 

, 

174 

Quarry  Land  No.  1     

30,000.00 

175 

Quarry  Land  No.  2  

10,000.00 

176 

Quarry  (Machinery)  and  Equipment 

30,000.00 

Forward, 

$1,715,050.00 

COSTS 


325 


Forward, 

Dwellings 

Shut-down  Period — 

Repair  Labor 

Repair  Material 

Expenses 

Work  in  Process — Clinker 

Work  in  Process — Stores 

Sack  Loss  (Deferred  Cost) 

Accrued  Pay  Roll 

Accrued  Interest  on  Bonds 

Accrued  Ro}'alties 

Bills  Payable— Trade 

Bills  Payable — Loans 

Accounts  Payable — 

Creditor's  Ledger 

Reserve — Insurance — Fire 

Reserve — Insurance — Liability . . . 

Reserve — Taxes — Plant 

Reserve — Taxes — Quarry  No.  1 . . 
Reserve — Taxes — Quarry  No.  2 .  . 

Reserve — Taxes — Dwellings 

Reserve — Depreciation — 

Mill  Buildings 

Mill  Machinery 

Quarry  Equipment  No.  1 

Quarry  Equipment  No.  2 

Dwellings 

Reserve — Depletion — Quarry  No.  1 
Reserve — Depletion — Quarry  No.  2 

Reserve  for  Contingencies 

Reserve  for  Doubtful  Accounts . . . 

Capital  Stock 

Bonds 

Surplus 

Inventory — Raw  Material  No.  1 .  . 
Inventory — Raw  Material  No.  2 . . 
Total .  . 


1,715,050.00 
40,000.00 

5,000.00 
10,000.00 

2,500.00 

10,000.00 

800.00 

50,000.00 


6,000.00 
2,300.00 


$1,841,650.00 


$10,000.00 
6,000.00 

50,800.00 

1,000.00 

3,000.00 

300.00 

110.00 

100.00 


30,000.00 

10,000.00 

8,000.00 

5,000.00 

3,000.00 

3,000.00 

1,000.00 

3,000.00 

2,500.00 

1,000,000.00 

500,000.00 

204,840.00 


$1,841,650.00 


326 


PROBLEMS  IX  COST  ACCOUNTING 


Schedule  2 

The  footings  of  the  cash  received  book  are  as  follows  for  the 
month : 


111 
112 
474 


141 

481 

482 


DEBIT  ENTRIES 

Cash — 1st  National 

Cash — 2nd  National 

Discounts  on  Sales . . 


CREDIT  ENTRIES 

Accounts  Receivable 

Interest  on  Investments 

Rental  on  Dwellings 


$200,000.00 
1,710.00 
5,000.00 


$206,710.00 


$205,000.00 

1,000.00 

710.00 


$206,710.00 


Schedule  3 

The  footings  of  the  cash  paid  book  are  as  follows  for  the 
month : 


DEBIT  ENTRIES 
230     Accounts  Payable $30,375.00 

451  Sales  Office  Salaries 300.00 

452  Sales  Office  Expenses 175.00 

453  Salesmen's  Salaries 200.00 

454  Salesmen's  Expenses 220.00 

461     Extra  Salaries 500.00 

162  Extra  Expenses 75.00 

163  Office  Salaries 400.00 

467  Postage 40.00 

468  Legal  Expenses 100.00 

469  Sundry  Expenses 200.00 

472     Interest,  Loans 75 . 00 

211     Pay  Roll,  1st  period 27,000.00 

$59,660.00 
CREDIT  ENTRIES 

111  Cash— 1st  National $29,285.00 

112  Cash— 2nd  National 30,000.00 

475     Discount  on  Purchases _      375.00 

$59,660.00 


COSTS 
Schedule  4 


327 


The  footings  of  the  purchase  journal  are  as  follows  for  the 
month : 


152  1 

DEBIT  ENTRIES 
Stores  

$20000  00 

152.2 

Gvpsum  

10,000  00 

153.1 

Kiln  Coal,  including  Freight  

72,200  00 

153.2 

Steam  Coal,  including  Freight  

16000  00 

455 

Advertising  

50  00 

457 

Association  Dues  

300  00 

458 

Automobile  

75  00 

459 

Sundries  

50  00 

464 

Rent,  Light  and  Heat  

200  00 

465 

Stationery  and  Printing  

75  00 

466 

Telegraph  

30  00 

152.3 

Explosives  

5,000.00 

154.1 

Bags,  Cloth  

20,000.00 

154.3 

Bags,  Paper  

3,000  00 

183 

Deferred  Sack  Loss  

16,000  00 

Credit  Accounts  Payable  

$162,980.00 

Schedule  5 

The  footings  of  the  sales  book  are  as  follows  for  the  month : 


141 

320 
154.1 
154.2 
154.3 

487 

Accounts  Re 

Cement  Sale 
Bags,  Cloth, 
Bags,  Cloth, 
Bags,  Paper 
Scrap  Sales 

DEBIT  ENTRY 
ceivable  

$214,000.00 

CREDIT  ENTRIES 

3  

$180,000.00 
30,000.00 
2,000.00 
1,800.00 
200.00 

New  

Second  Hand  .  .          

$214,000.00 

328 


PROBLEMS  IN  COST  ACCOUNTING 


The  footings  of  the  returned  sales  book  are  as  follows  for  the 
month : 


154  2 

DEBIT  ENTRIES 
Bags,  Cloth,  Second  Hand  

$10,000.00 

456 

Commission  

50.00 

$10,050.00 

141 

Accounts  Receivable  

$10,000  00 

457 

Association  Dues  

50.00 

$10,050.00 

Schedule  6 

The  analysis  of  the  pay  rolls  for  the  period  gives  the  fol- 
lowing distribution: 


510 

DEBIT  ENTRIES 
Raw  Material  No.  1  

$6  500  00 

520 

Raw  Material  No.  2  

2550  00 

610 

Raw  Grinding        

10000  00 

620 

Clinker  Burning               

7000  00 

630 

Clinker  Grinding           

3  100  00 

640 

Mill  Overhead  

1,000.00 

670 

Coal  Preparing        

1,000.00 

680 

Power,  Light  and  Water  

3,500.00 

690 

Machine  Shop    

10,150.00 

700 

Floating  Gang            

600.00 

430 

Packing  and  Loading      

1,000.00 

440 

Sack  Handling           

1,300  00 

?11 

Credit  Pay  Roll     

$47,700.00 

Schedule  7 

The  analysis  of  the  repair  labor  for  the  period  gives  the  fol- 


lowing distribution : 


COSTS 


329 


510 
520 
610 
620 
630 
670 
680 
430 
440 
640 


DEBIT  ENTRIES 

Raw  Material  No.  1 

Raw  Material  No.  2 

Raw  Grinding 

Clinker  Burning 

Clinker  Grinding 

Coal  Preparing ^ 

Power,  Light  and  Water 

Packing  and  Loading 

Sack  Handling 

Mill  Overhead  (Undistributed  balance  of  machine  shop 
overhead) 


Credit  Machine  Shop. 


$2,000.00 

200.00 

2,300.00 

1,600.00 

825.00 

900.00 

1,900.00 

200.00 

100.00 

725.00 


$10,750.00 


Schedule  8 

The  analysis  of  operating  supplies  issued  for  the  period  gives 
the  following  distribution : 


DEBIT  ENTRIES 

510         Raw  Material  No.  1 $1,500.00 

520         Raw  Material  No.  2 500  00 

610         Raw  Grinding 900.00 

620         Clinker  Burning 850.00 

630         Clinker  Grinding 550.00 

670         Coal  Preparing 1,000.00 

680         Power,  Light  and  Water 1,500.00 

690         Machine  Shop 150.00 

700         Floating  Gang 100.00 

430         Packing  and  Loading 100.00 

440         Sack  Handling 50.00 

510         Raw  Material  No.  1 2,000.00 

520         Raw  Material  No.  2 200.00 

$9,400.00 
CREDIT  ENTRIES 

152.1     Stores $7,200.00 

152.3     Explosives 2,200.00 


$9,400.00 


330 


PROBLEMS  IN  COST  ACCOUNTING 


Schedule  9 

The  analysis  of  repair  materials  issued  for  the  period  gives 
the  following  distribution : 


DEBIT  ENTRIES 


510         Raw  Material  No.  1 $3,000.00 

520         Raw  Material  No.  2 100.00 

610         Raw  Grinding 1,550.00 

620         Clinker  Burning 2,400.00 

630         Clinker  Grinding 1,550.00 

670         Coal  Preparing 900.00 

680         Power,  Light  and  Water 1,400.00 

690         Machine  Shop 50.00 

430         Packing  and  Loading 100.00 

440         Sack  Handling 50.00 

640         MiU  Overhead 

Maintenance,  Yard  and  Buildings 50 . 00 

Club  House 20.00 

Automobile 75.00 

Miscellaneous 25 . 00 

152.1     Credit  Stores..                               $11,270.00 


Schedule  10 

One-twelfth  of  the  annual  cost  of  insurance  is  distributed 
as  follows : 


510 
520 
650 

241.2 


650 
483 

241.1 


DEBIT  ENTRIES 

Raw  Material  No.  1 

Raw  Material  No.  2 

Reserves  (Expense) 


Credit  Reserve  for  Insurance  (Liability  Insurance) . 

DEBIT  ENTRIES 

Reserves  (Expense) 

Dwellings 


Credit  Reserve  for  Insurance  (Fire  Insurance) 


$500.00 
100.00 
400.00 


[,  000. 00 


$200.00 
100.00 


$300.00 


COSTS 


331 


Schedule  11 

One-twelfth  of  the  annual  cost  of  taxes  is  distributed  as  fol- 
lows: 


510 

DEBIT  ENTRIES 
Raw  Material  No.  1  

$50  00 

520 

Raw  Material  No.  2  

20  00 

650 

Reserves  (Expense)  

500  00 

483 

Dwellings  

10  00 

$580.00 

242.1 

CREDIT  ENTRIES 
Reserve  for  Taxes,  Plant  

$500  00 

242.2 

Reserve  for  Taxes,  Quarry  No.  1  

50  00 

242.3 

Reserve  for  Taxes,  Quarry  No.  2  

20  00 

242.4 

Reserve  for  Taxes,  Dwellings  

10  00 

$580.00 

Schedule  12 

One-twelfth  of  the  annual  amount  of  depreciation  is  distribu- 
ted as  follows: 


510 

DEBIT  ENTRIES 
Raw  Material  No.  1  

$1,000  00 

520 

Raw  Material  No.  2  .   

300  00 

650 

Reserves  (Expense)           

10,000  00 

483 

Dwellings        

200  00 

$11,500.00 

243.1 

CREDIT  ENTRIES 
Reserve  for  Depreciation,  Mill  Buildings  

$800  00 

243.2 

Reserve  for  Depreciation,  Mill  Machinery  

9,200  00 

243.3 

Reserve  for  Depreciation  Quarry  No.  1        

1  000  00 

243.4 

Reserve  for  Depreciation,  Quarry  No.  2  

300.00 

243.5 

Reserve  for  Depreciation,  Dwellings  

200.00 

$11,500.00 

332 


PHOBLEMS  IN  COST  ACCOUNTING 


Schedule  13 

One-twelfth  of  the  annual  amount  of  depletion  on  the  quar- 
ries is  distributed  as  follows: 


DEBIT  ENTRIES 

510         Raw  Material  No.  1 $200.00 

520         Raw  Material  No.  2 80 . 00 

.  $280.00 
CREDIT  ENTRIES 

244 . 1  Reserve  for  Depletion,  Quarry  No.  1 $200 . 00 

244.2  Reserve  for  Depletion,  Quarry  No.  2 80.00 

$280.00 

Schedule  14 

The  royalties  accrued  for  the  month  are  as  follows : 

DEBIT  ENTRY 
430     Packing  and  Loading $600.00 

CREDIT  ENTRY 
213     Royalties  (Accrued  Royalties  for  Month) $600 . 00 

Schedule  15 

The  analysis  of  coal  distributed  to  the  various  departments 
for  the  month  gives  the  following  results : 

DEBIT  ENTRIES 
670         Coal  Preparing $19,000.00 

153.1  Credit  Coal  (Kiln) $19,000.00 

DEBIT  ENTRIES 

670  Coal  Prepaiing $1,000.00 

510  Raw  Material  No.  1 2,000.00 

520  Raw  Material  No.  2 1,000.00 

610  Raw  Grinding 500.00 

680  Power,  Light  and  Water 20,750.00 

690  Machine  Shop 200.00 

153.2  Credit  Coal  (Steam) $25,450.00 


COSTS 


333 


Schedule  16 

The  analysis  of  the  work  done  by  the  floating  gang  as  shown 
by  time  tickets  gives  the  following  results  for  the  period: 


DEBIT  ENTRIES 

430     Packing  and  Loading : $200.00 

440     Sack  Handling 150.00 

510     Raw  Material  No.  1 100.00 

520     Raw  Material  No.  2 150.00 

640     Mill  Overhead 100.00 

700     Credit  Floating  Gang ' $700.00 

Schedule  17 

The  analysis  of  the  power,  light  and  water  service  rendered 
for  the  period  gives  the  following  results : 

DEBIT  ENTRIES 

510  Raw  Material  No.  1 .' $150.00 

610  Raw  Grinding 8,000.00 

620  Clinker  Burning 7,000.00 

630  Clinker  Grinding 7,200.00 

670  Coal  Preparing 6,000 .00 

690  Machine  Shop 200.00 

430  Packing  and  Handling 500.00 

440  Sack  Handling 200.00 

680     Credit  Power,  Light  and  Water $29,250 . 00 

Schedule  18 

It,  is  necessary  to  transfer  the  coal  preparing  cost  for  the 
period. 

DEBIT  ENTRY 
620     Clinker  Burning $30,000.00 

CREDIT  ENTRY 
670     Coal  Preparing  (Fuel) $30,000.00 


334 


PEOBLEMS  IN  COST  ACCOUNTING 


It  is  necessary  to  make  a  charge  to  the  Clinker  Burning  ac- 
count for  the  gypsum  consumed  during  the  period. 


DEBIT  ENTRY 


630         Clinker  Burning $5,000.00 

CREDIT  ENTRY 

152.2  Gypsum... $5,000.00 

One-twelfth  of  the  shut-down  expenses,  labor  and  repair  ma- 
terials is  distributed  as  follows : 

DEBIT  ENTRY 

640         Mill  Overhead $425.00 

CREDIT  ENTRY 

181 .3  Shut-Down  Period  Expenses $425.00 

DEBIT  ENTRIES 

610         Raw  Grinding , $200.00 

620         Clinker  Burning 200.00 

670         Coal  Preparing 100.00 

680         Power 100.00 

181 . 1  Credit  Shut-Down  Period,  Repair  Labor $600 . 00 

DEBIT  ENTRIES 

610         Raw  Grinding $200.00 

620         Clinker  Burning 200.00 

670         Coal  Preparing 100.00 

680         Power 100.00 

181.2  Credit  Shut-Down  Period,  Repair  Material $600 . 00 


The  next  step  is  to  prepare  the  necessary  journal  entries  to 
close  the  manufacturing  and  trading  accounts.  In  order  to  do 
this  in  a  Portland  cement  manufacturing  plant  it  is  necessary 


335 


to  have  certain  information  available  in  addition  to  the  figures 
appearing  on  the  ledger  accounts  which  have  been  set  up.  This 
information  is  given  in  the  next  schedule. 

Schedule  19,  Inventories  and  Production 


Inventory 

Production 

Inventory 

Consump- 

Description 

Beginning 

During 

at  end  of 

tion  During 

of  Peri  xl 

Period 

Period 

Period 

510 

Raw  Material  No.  1  ... 

Ton 

15,000 

35,000 

20,000 

30,000 

520 

Raw  Material  No.  2  ... 

Ton 

10,000 

20,000 

10,000 

20,000 

6?0 

Clinker  Burning  

Bbl. 

10,000 

100,000 

5,000 

105,000 

151 

Cement  

Bbl. 

50,000 

105,000 

55,000 

100,000 

The  details  of  the  inventory  of  the  Clinker  Burning  account 
are  as  follows: 

Raw  Material $2,200.00 

Operating  Labor 1,800.00 

Operating  Supplies 150 . 00 

Repair  Labor 470.00 

Repair  Materials 500 . 00 

Power 1,750.00 

Fuel 3, 130 . 00 


Total $10,000 . 00 

The  first  manufacturing  account  to  be  closed  is  Raw  Ma- 
terial No.  1.  The  inventory  at  the  beginning  of  the  period  plus 
the  production  during  the  period,  as  given  in  Schedule  19,  fur- 
nishes the  data  needed  in  addition  to  the  information  given  on 
the  ledger  for  calculating  the  cost  per  ton  for  Raw  Material 
No.  1  for  the  period.  When  the  cost  per  ton  has  been  figured 
the  inventory  of  Raw  Material  No.  1  at  the  close  of  the  period 
can  be  priced  and  the  account  closed.  The  cost  of  cement  rock 
consumed  is  transferred  by  journal  entry  from  Raw  Material 
No.  1  account  to  the  Raw  Grinding  account. 

The  second  manufacturing  account  to  be  closed  is  Raw  Ma- 
terial No.  2.  The  same  procedure  is  followed  in  closing  this 


336  PROBLEMS  IN  COST  ACCOUNTING 

account  as  outlined  for  closing  the  Raw  Material  No.  1  account. 
The  cost  of  limestone  consumed  is  transferred  by  journal  entry 
from  Raw  Material  No.  1  account  to  the  Raw  Grinding  account. 

The  third  manufacturing  account  to  close  is  the  Raw  Grind- 
ing account.  The  account  has  now  been  charged  for  Raw  Ma- 
terials Nos.  1  and  2.  Since  the  account  carries  no  inventory 
all  that  is  necessary  to  do  is  to  close  it  out  to  the  Clinker  Burn-' 
ing  account  by  means  of  a  journal  entry. 

The  fourth  manufacturing  account  to  close  is  the  Clinker 
Burning  account  which  has  an  inventory  at  the  beginning  and 
end  of  the  period.  The  inventories  together  with  the  produc- 
tion for  the  period  are  given  in  Schedule  19.  The  method  of  pro- 
cedure followed  in  arriving  at  the  cost  of  production  per  barrel 
is  analogous  to  that  followed  in  calculating  the  cost  of  Raw 
Material  No.  1.  After  the  cost  per  barrel  has  been  found  and 
the  inventory  priced  the  account  is  closed.  The  amount  con- 
sumed is  transferred  by  means  of  a  journal  entry  from  Clinker 
Burning  account  to  the  Clinker  Grinding  account. 

The  next  manufacturing  account  to  close  is  Clinker  Grind- 
ing, the  balance  of  which  is  transferred  by  means  of  a  journal 
entry  to  the  Finished  Cement  account. 

The  balances  to  the  Mill  Overhead  and  the  Reserves  ex- 
pense accounts  are  closed  by  means  of  journal  entries  into  the 
Finished  Cement  account. 

The  Finished  Cement  account  has  been  charged  for  the 
product  .of  the  Clinker  Grinding  account,  Mill  Overhead  and 
Reserves  expense.  The  balance  is  transferred  by  means  of  a 
journal  entry  to  the  Cement  Inventory  account. 

The  Cement  Inventory  account  always  shows  an  inventory 
balance  as  indicated  in  Schedule  18.  The  method  of  calculating 
the  cost  of  producing  cement  and  of  closing  the  Cement  Inven- 
tory account  is  the  same  as  that  followed  in  closing  the  Raw  Ma- 
terial No.  1  account.  The  cost  of  cement  sold  for  the  period 
is  transferred  by  means  of  a  journal  entry  to  the  Trading  ac- 
count. 

The  Cement  Sales  account  which  has  a  credit  balance  of 
$180,000  as  shown  by  the  ledger  is  closed  into  the  Trading 
account  by  means  of  a  journal  entry. 


COSTS  337 

The  balance  to  the  Trading  account  is  closed  into  Profit  and 
Loss  at  the  end  of  the  period. 

There  is  a  loss  sustained  on  new  sacks  shipped  out  and  so 
an  entry  is  to  be  made  charging  Sack  Cost  and  crediting  De- 
ferred Sack  Loss  account  for  $15,000. 

It  is  also  necessary  to  set  up  a  reserve  for  accrued  interest 
on  bonds  amounting  to  $5,000  for  the  period.  A  charge  is 
made  to  Interest  on  Bonds  account  and  a  credit  to  Accrued 
Interest  on  Bonds  account. 

TRIAL  BALANCE  OF  GENERAL  LEDGER  AFTER  CLOS- 
ING MANUFACTURING  AND  TRADING  ACCOUNTS 

After  the  foregoing  journal  entries  have  all  been  prepared 
and  postings  made  to  the  general  ledger,  a  trial  balance  must  be 
taken  off.  The  balances  tc  the  accounts  in  the  general  ledger 
should  be  arranged  on  the  trial  balance  in  the  same  order  that 
they  appear  on  the  ledger. 

TRADING  AND  PROFIT  AND  LOSS  ACCOUNT  AND 
STATEMENT  OF  MONTHLY  OPERATION  COSTS 

From  the  information  contained  in  the  Trial  Balance  of 
General  Ledger  after  closing  the  manufacturing  and  trading 
accounts,  and  an  analysis  of  the  manufacturing  and  trading 
accounts  on  the  ledger  prepare  a  Trading  and  Profit  and  Loss 
Account  and  also  a  Statement  of  Monthly  Operation  Costs 
for  the  period. 

BALANCE  SHEET 

Finally  prepare  a  Balance  Sheet  as  at  the  close  of  business 
January  31,  1918.  In  setting  up  the  Balance  Sheet  use  the 
statement  form,  with  assets  on  the  left  hand  side  and  liabili- 
ties on  the  right  hand  side.  Arrange  the  assets  beginning  with 
cash  and  ending  with  the  plant.  On  the  liability  side  begin  with 
the  current  liabilities  and  end  with  the  capital  accounts  and 
surplus. 


INDEX 


Account,  accounts  payable,  294 
accounts  renewable,  292 
administration  expense,  271 
building  expense,  258,  268 
burden,  278 
capital,  295 
cash,  292 
controlling,  255 
cost,  268,  276,  296 
cost  of  sales,  270,  295,  311 
depreciation  reserve,  294 
factory  overhead,  158,  162 
factory  ledger,  311 
factory  supplies,  277 
finished  goods,  257,  267,  270, 

277 

fixed  charges,  270 
fund  for  depreciation,  162 
furniture,  hardware,  277 
general  ledger,  256,  262,  265, 

278,  311 

indirect  expense,  294 
insurance  unexpired,  294 
interest,  295 
labor,  311 
lumber,  276 
machine  expense,  271 
manufacturing  account,  220, 

226,  227,  269,  277,  293 
material,  311 
material  expense,  271 


old  machinery,  163 

overhead  expense,  257,  266 

pay  roll,  271,  295 

piece  parts,  269 

plant,  294 

power,  258,  268 

power  expense,  270 

profit  and  loss,  296,  311 

raw  hides,  293 

raw  material,  269 

rent,  258,  268 

reserve     for     depreciation, 
158,  160,  162 

sales  account,  295,  311 

selling  expense,  271,  295 

sole  leather,  294 

stores,  257,  267 

sundry  expense,  271 

supplies,  270,  293 

taxes  accrued,  295 

water,  293 

work  in  process,  256,  265 
Accounts     payable,     account, 
294 

distribution,  Problem  5,  28 

register,  Exhibit  14,  29 

register,  Problem  77,  297 

registers,  147,  151 
Accounts  receivable,  292. 
Administration     expense     ac- 
count, Problem  75,  271 


339 


340 


INDEX 


Allegation,  64 

Problem,  18,  65 
Amortization,  Problem  79,  319 
Analysis  of  cost  accounts  for 
tannery,  Exhibit  40,  291 
Analysis  of  expense,  152 
Automatic    machine    expense, 

142 

Problem  43,  143 
Average  number,  Problems  67 

and  68,  235 
yarn  spooled,  235 
yarn  spun,  233 

Balance  sheet  for  a  tannery, 

Exhibit  39,  289 
Bonus,  per  cent,  91 
Problem  29,  87 
scale,  91 
table,  86 
wage  system  (Gantt),  77, 

79,  85 
Building  expense,  account,  258, 

268 

Problem  77,  302 
Burden,  accounts  in  furniture 
factory,  Problem  76,  278 
rates  in  foundries,  136 
By-products,  55,  56,  65,  193, 

206 
Problem  76,  283 

Capital  account,  295 

Cartage  and  carfare  expense, 

149 

Cash  account,  292 
Chart,     showing     depreciated 

value,  Exhibit  34,  158 


Chart,  showing  three  methods 

of  cutting  a  hide  used 

for  sole  leather,  62 
Controlling    ledger     accounts, 

255 
Conversion  cost  of  yarn,  232, 

236 

Cost  accounts,   furniture  fac- 
tory, Problem  76,  276 
machine  shop,  296 
machine  tool  builder,  268 
Portland    cement    industry, 

321 
Cost  after  a  gain  in  weight, 

Problem  20,  67 
Cost    after     a    shrinkage     in 

weight,  Problem  21,  68 
Cost  of  asphalt,  241 

Problem  70,  242 
bleaching  cloth,  Problem  66, 

231 

combed  top,  Problem  19,  67 
delivery,  Problem  72,  249 
dyeing    cloth,    Problem    66, 

231 
filling  and  weaving  in  silk 

goods,  Problem  73,  250 
finishing  plain  cotton  cloth 

per  yard,   Problem   66, 

231  ' 
floor     space,     Problem     71, 

244 
goods  finished,  Problem  77, 

303 

handling  stock,  149 
material,  56 
mercerizing   cloth,    Problem 

66,  231 


INDEX 


341 


Cost  of  mixture,  63 

Problems  17  and  18,  64, 

65 

Panama  hat  bodies,  61,  62 
printing  cloth,  Problem  66, 

231 
producing  and  selling  bread, 

Problem  72,  247 
producing  copper,  314 

Problem  79,  318 
repairs,  Problem  69,  238 
returns,  Problem  77,  303 
sales,  Problem  76,  283 

Problem  77,  303 
sales  account,  295,  311 

Problem  75,  270 
sales  analysis,  190 
Problem  58,  193 
simple  and  combined  manu- 
facturing processes,  229 
sole  leather,  288 
sorted  wool,  66 
timber   per   ton   of   ground 

pulp,  57 
unused  capacity,  143 

Problem  44,  145 
warp  in  silk  goods,  Problem 

73,  249 

yarn  in  hosiery,  213 
yarn  in  knit  goods,  69 

Problem  24,  71 
Cost  of  manufacture,  ash  bed- 
steads, Problem  54,  182 
brick,  314 
cordage,  218,  220 
Problem  65,  226 
Goodyear,  welt  shoes,  250 
Problem  74,  251 


Cost    of    manufacture,    hexa- 
gon head  stove  bolts,  181 

horseshoe  anvil,  178 

hosiery,  213 
Problem  64,  218 

oak  mantel,  problem  53, 
180 

100  dozen  pairs  of  cotton 
hose,  183 

100  dozen  cans  peas,  185 

100  yards  silk,  Problem  73, 
249 

1,000  dozen  cans  apricots, 
Problem  56,  187 

1,000  pounds  of  ginger 
snaps,  176 

100,000  feet  pine  boards, 
Problem  55,  184 

30,000  No.  1  giant  cannon 
crackers,  Problem  52, 
177 

overhead  applied  as  a  per- 
centage on  labor,  176 

overhead  applied  on  basis  of 
rate  per  hour,  178 

overhead  applied  on  basis  of 
rate  per  machine  hour, 
180 

overhead  applied  on  basis  of 
number  of  units  pro- 
duced, 183 

overhead  and  direct  labor 
together  applied  on  the 
basis  of  a  rate  per  sold 
hour,  187 

sole  leather,  Problem  63,  211 

upper  leather,  Problem  63, 
212 


342 


INDEX 


Cost   per  kw.   hour,   Problem 

71,  247 
pound  for  indirect  expense, 

132 

pound  for  rope  laying,  224 
production  hour,  149 
ton  of  ground  pulp  for  tim- 
ber, 58 

Problem  15,  59 
yard    for   indirect   expense, 

weaving  mill,  134 
Problem  40,  136 
Cost  sheet,  Problem  36,  239 
Cost  system,  foundry  and  ma- 
chine shop,  256 
tannery,  286 
Cross  section   of   a   Goodyear 

welt-shoe,  Exhibit  3,  9 
Cumulative    and    comparative 
analysis  of  expense,  Ex- 
hibit 33,  154 
Problem  46,  155 
Cupola  expense,  136 

Daily  time  ticket,  bindery  de- 
partment of  a  job  print- 
ery,  100 

Exhibit  25,  101 

Problem  33,  103 

Exhibit  26,  106 

Problem  34,  105 

composition  department  of  a 
job  printery,  Exhibit 
23,  94 

Problem  31,  95 

pressroom  of  job  printery, 
Exhibit  24,  97 

Problem  32,  99 


Department    direct    expenses, 

148 
Depreciation,     asphalt     plant, 

Problem  70,  242 
bakery     business,     Problem 

72,  247 

fixed  percentage  on   dimin- 
ishing value  method  for- 
mula, 164 
Problem  49,  165 
mines  and  mining  property, 

167 

Problem  47,  160 
Problem  71,  245 
reserve  account,  294 
sinking   fund   method,    166 

Problem  50,  167 
straight  line  method,  Prob- 
lem 77,  299 
Differential  piece  rate  (Taylor 

system),  77,  78,  82 
Problem  27,  83 
Discount  on  purchases,  Prob- 
lem 77,  304 

Distribution  of,  expense,  Prob- 
lem 75,  275 
productive  labor,  239 
rent,    power    and    light   ex- 
pense, Problem  75,  274 
stores,  Problem  75,  275 
Drafting      expense      account, 
Problem  75,  271 

Efficiency,  per  cent,  88,  91 
system    (Emerson),   77,   79, 

87,  88 

Problem  30,  91 
Elapsed  time,  95,  96,  98,  100 


INDEX 


343 


Emerson  wage  system,  77,  78 
Problem  30,  91 

Estimate  sheet  used  by  print- 
er, Exhibit  1,  5 

Estimated  factory  costs,  Prob- 
lem 78,  312 

Estimates  of  materials  used  in 
manufacturing,  Prob- 
lem 76,  281 

Estimating  cost  system,  306 

Examination  question,  321 

Expired  capital  outlay,  157 
chart    showing    depreciated 
value,  158 

Factory     overhead     account ; 

milling  machines,  162 
cylinder  press  dep't,  158 

Problem,  47,  160 
Factory  ledger  accounts,  311 
Factory  ledger  trial  balance, 

Problem  76,  283 
Fee  mines,  167 

Problem  51,  170 
Factory      supplies,      account, 

Problem  76,  277 
issued     from     store     room, 

Problem  76,  280 
Filling  yarns,  131 
Findings  in  shoe  factory,  254 
Finished   goods   account,   257, 

267 

Problem  75,  270 
Problem  76,  277 
Fixed  charges,  316 
distribution,  151 
machinery  account,  Problem 
75,  276 


Fixed  charges,  machinery  ac- 
count, Problems  75  and 

76,  273-280 
tannery,  288 

Fixed  proportion  system  of 
depreciation,  157 

Fuel  and  lubricants  used  in 
asphalt  plant,  Problem 
70,  242 

Fund  for  depreciation,  160 
account,  162 

Furniture  factory  cost  ac- 
counts, Problem  76,  276 

Furniture  hardware  account, 
Problem  76,  277 

Gantt  bonus  wage  system,  77, 

79 

Problem  29,  87 
General  factory  burden,  Prob- 
lem 76,  282 
General  ledger,  account,   256, 

262,  265,  311 
Problem  76,  278 
tannery,  292 
General  work  order,  Problem 

1,  7 

Grading  of  material,  56 
Graphic    charts,    Problem    62, 
201 

Halsey  premium  wage  system, 

77,  84 
Problem  28,  85 

Hosiery    costs,     Problem    78, 

312 
Hourly  machine  rates,  139, 

144 
Hourly  rate  wage  system,  77 


344 


INDEX 


Idle  machinery  report,  Exhib- 
it 32,  146 

Indirect  expense,  account,  311 
account  (Hides  in  Process), 

294 

analysis  of,  241 
cartage  and  carfare,  149 
depreciation,  149 
fixed  charges,  151 
insurance  and  taxes,  148 
interest,  149 
light,  147 

office    stationery    and    post- 
age, 149 
per  pound  of  cotton  yarn, 

Problem  39,  133 
power,  148 
rent,  147 

sole  leather  and  upper  leath- 
er tanneries,  205,  207 
spinning  mills,  131 
textile  mills,  128 
Indirect  labor  in  hosiery  mills, 

214 
Individual     workman 's     time 

record  sheet,  195 
Insole  for  shoe,  Exhibit  5,  10 
Insurance  expense,  148 

Problem  77,  299 
Insurance  unexpired  account, 

294 

Interest,  149 
account,  295 

on  plant  investment  in  as- 
phalt plant,  Problem 
70,  242 

Problem  71,  72,  245,  248 
Inventory,  closing,  292,  307 


Inventory,     closing,     Problem 

78,  313 
forms,  32 

opening,  258,  286,  307 
Problem  75,  76,  78,  272, 

279,  312 
of  parts  form,  Problem  10, 

45 

of  work  in  progress,  238 
sheet,  ctiupon  form,  Problem 

11,  46 

Invisible  loss  in  manufactur- 
ing, 68 

Problem  23,  69 
Invoice  forms  for  use  in  knit- 
ting mills,   Problem  4, 
25 

Job  ticket  used  by  printer,  5 
Journal  entries,  261 

for  a  tannery,   Exhibit  37, 

284,  285 

Labor,  account,  311 

cost  in  sole  leather  tanneries, 

204 

cost  in  upper  leather  tan- 
neries, 207 

in  bakery,  Problem  72,  247 
Leather  cutting  slip,   Exhibit 

20,  51 

Problem  13,  52 
Light  expense,  147 

account,  Problem  75,  270 
Lithographing  business,  forms, 

Problem  1,  7 
Loom  day  system,  134 
Loom  harness,  113 
Loss  and  gain,  Problem  75,  275 


INDEX 


345 


Loss     and     gain,     in    weight, 

Problem  20,  67 
on    estimates,    Problem    76, 

278,  281 

Loss  due  to  idle  machinery,  143 
Exhibit  32,  146 
Problem  44,  145 
Loss  in  real  estate  taxes,  Prob- 
lem 71,  245 

Lumber  account,  Problem  76, 
276 


Machine      expense      account, 

Problem  75,  271 
automatic  machines,  142 
calculation  of  rate,  140 
per  hour,  139 
Problem  42,  43,  141,  143 
Machine  production  in  hosiery 

mill,  215 
Machine  tabulated  records,  198 

Problem  61,  199 
Manufacturing  account,  Prob- 
lem 75,  76,  269,  277 
labor  account,  293 
material  account,  293 
rope  account,  221 
Problem  65,  227 
yarn   account  in  rope   fac- 
tory, 220 
Problem  65,  226 
Material,  account,  311 
cost  calculations,  56 
expense     account,     Problem 

75,  271 

issued    from    storeroom    in 
tannery,  288 


Municipal     costs     in     asphalt 

plant,  241 
Problem  70,  242 

Numbering   system    for   rope- 
hemp  yarns,  219 

Office  and  general  expense  ac- 
count, 257,  267 
Office  stationery  and  postage, 

149 

Old  machinery  account,  163 
One  hundred  per  cent  produc- 
tion of  looms,  197 
Problem,  60,  198 
Operating    expenses,    Problem 

71,  244 

Organzine  (warp),  71 
Out-freight,  Problem  77,  304 
Outsole  for  shoe,  Exhibit  6,  11 
Overhead,  and  depreciation  in 
asphalt  plant,  Problem 
70,  242 

and    direct    labor    together 

applied  on  the  basis  of  a 

rate  per  sold  hour,  187 

Problem  57,  189 

applied  on  basis  of  a  rate 

per  hour,  178 
applied  on  basis  of  rate  per 

machine  hour,  180 
applied  on  basis  of  number 

of  units  produced,  183 
applied  as  a  percentage  on 

labor,  176 

cost  per  hour  in  iron  foun- 
dries. Problem  41,  138 


346 


Overhead    cost    per    ton    for 
cupola  expense,  Problem 
41,  138 
expense,  123 

account,  257,  266 

cartage  and  carfare,  149 

depreciation,  149 

fixed  charges,  151 

insurance  and  taxes,  148 

interest,  149 

light,  147 

office  stationery  and  post- 
age, 149 

power,  148 

rent,  147 

shoe  factories,  Problem  74, 
252 

Pay  roll,  92 
account,  295 

Problem  75,  271 
analysis,  259,  315 

Problem  76,  77,  79,  280, 

301,  319 

rope  factory,  222,  228 
shoe  factory,  Problem  74, 

251 

tannery,  286 
calculations,  112 
calculation     sheet,     Exhibit 

28,  116 
distribution,     Problem     75, 

274 

form,    composition    depart- 
ment of  a  job  printery, 
Exhibit  27,  109 
Problem  35,  111 
textile  mill,  Problem  37,  119 


Pay  roll,  weaving  mill,  Exhibit 

29,  117 

Problem  37,  119 
Percentage  of  efficiency,   196, 

197 

Problem  60,  198 
Percentage     on     direct    labor 

method,  125 
Perpetual       inventory      stock 

record,  Exhibit  17,  41 
Petty  cash  voucher,  Exhibit  13, 

27 

Picks  per  inch,  113,  131 
Piece  parts  •  account,  Problem 

75,  269 
Piece  work,  in  shoe  factories, 

254 
rates,  80,  113 

Problem  36,  118 
wage  system,  77,  80 
Plant  account,  294 
Power  account,  258,  268 

Problem  75,  270 
Power   expense,    Problem    77, 

302 

Premium  rate  wage  system, 
(Halsey:  Rowan),  77, 
84 

Problem  28,  85 
Production,      asphalt      plant, 

Problem  70,  243 
bakery,  Problem  72,  247 
brick,  316 
castings,  261 

copper  ore,  Problem  79,  319 
coupon  form,  Problem  3,  18 
finished  goods,  Problem  76, 
283 


INDEX 


347 


Production,  looms,  197 

Problem  60,  198 
machines  in  hosiery  mill,  215 
order  for  garment  factory, 
order  for  job   printer,   Ex- 
hibit 2,  7 
order  for  lithographing  Wsi 

ness,  Problem  1,  7 
order  for  shoe  factories,  9 
order  for  straw  hat  factory, 
quadruplicate      form, 
Problem  2,  17 
orders,  3 
report,  221 
rope  making,  227 
steel  rolling  mill,  201 
table,  cotton  yarn,  132 
table,  ring  warp  and  filling 

yarn,  Exhibit  30,  130 
showing    yards    produced 
by  a  loom,  Exhibit  31, 
130 
Productive  looms  method,  125, 

126 

Problem  38,  127 
Productive    labor    in    asphalt 
plants,  Problem  70,  243 
Productive  time,  102 
Prepared  coconut,  analysis  of 

sales,  190 

Printing  and  publishing  indus- 
try costs,  187 
Problem  57,  189 
Profit  and  loss,  account,  296, 

311 
Profits   on   supplies,    Problem 

79,  319 
Purchase  order,  Exhibit  11,  24 


Punched  cards,  198 

Problem  61,  199 
Purchases,  259,  314 
analyses  of,  26 
Problem  76,  280 
Problem  79,  318 
tannery,  286 

Raw  hide  stock  record,  Exhibit 

16,  37 

Raw  hides  account,  293 
Raw  material  account,   Prob- 
lem 75,  269 
cost  in  sole  leather  tanneries, 

203 
in  upper  leather  tanneries, 

206 
issued       from      storehouse, 

Problem  76,  281 
report,  Exhibit  21,  54 
Raw  materials  used  in  asphalt 

plant,  Problem  70,  243 
Rent,  account,  258.  268 
expense,  147 
Problem  75,  270 
Rental     value,     Problem     71, 

246 
Repairs  expense,  Problem  77, 

301 

Report  of  cotton  opened,  Prob- 
lem 14,  55 

Requisition  on  storekeeper,  Ex- 
hibit 19,  49 
Problem  12,  49 
Reserve   for  depreciation,   ac- 
count, 158,  162 
Problem  47,  160 
Return  sales,  Problem  77,  304 


348 


INDEX 


Revenue  from  depreciation 
fund  investments,  161 

Rowan  premium  wage  system, 
77 

Royalties  in  shoe  factory, 
Problem  74,  253 

Royalty  mines,  167 

Sales,  307 
account,  295,  311 
allowances,  Problem  77,  304 
analysis,  190 

Problem  58,  78,  193,  313 
Schedule  for  estimating  costs, 

306 

Scrap  report,  260 
Seconds  expense,  216 
Selling  expense,  127 
account,  295 

Problem  72,  75,  249,  271 
Shoe    factory    production    or- 
ders, 9,  13,  15 
Shoe  last,  Exhibit  4,  10 
Shoe  lasted  and  ready  to  have 
welt  sewed  on,  Exhibit 
7,  11 
Shoe  tag,  Exhibits  9  and  10, 

14,16 

Shoe  with  heel  in  place,  Ex- 
hibit 8,  12 

Shrinkage    on    lumber,    Prob- 
lem 76,  282 
Six  minute  intervals,  104 

Exhibit  26,  106 
Sole  leather,  account,  294 
cost  formula,  203 
costs.  Problem  74.  251 
products,  Problem  74,  253 


Spinning  mill  overhead,  131 
Split  leather  problem  in  upper 

leather  tanneries,  206 
Spoiled  work,  149 
Standard  time,  80,  81,  88 
Statement  of  cost  per  produc- 
tion hour  and  the  cost 
of  handling  stock,  151 
Steel  and  iron  industry  depre- 
ciation on  property,  167 
Problem  51,  170 
Stock  record,  32 

candied  citron,  Problem.  7, 

38 
ostrich  feathers,  Exhibit  15, 

34 
paper     stock,     Problem     6, 

35 

raw  hides,  Exhibit  16,  37 
Stores,  account,  257,  267 
consumed,  260 
expense  account,  257,  267 
issued  punch  card,  200 
requisition,  4,  48,  260 

Problem  77,  301 
Straight  line  method  of  hand- 
ling    depreciation      on 
mines,  170 

Superintendence     in     asphalt 
plant,  Problem  70,  243 
Supervision,  Problem  71,  244 
Supplies,  account,  293 
Problem  75,  270 
profits  on,  Problem  79,  319 
Sundry  expense  account,  Prob- 
lem 75,  271 

System  of  counts  in  silk  indus- 
try, 71 


INDEX 


349 


Take-up  in  yarn  due  to  twist- 
ing, Problem  22,  68 
Tanning     materials     account, 

293 

Tariff  Board,  131,  132,  134 
Taxer,  148 

accrued  account,  295 
asphalt  plant,  242 
Problem  77,  300 
Tax  rate,  Problem  71,  245 
Taylor  differential   wage   sys- 
tem, 77,  78,  82 
Problem  27,  83 
Textile,     finishing   mill    costs, 

229 

mill  fixed  charges,  151 
mill  forms,  Problem  12,  49 
mills  efficiency,  196 
mills  expense,  128 
Time  keeping,  92 
daily  time  ticket,  93 

Problem  31,  32,  33,  95,  99, 

103 
decimal  system,  Exhibit  26, 

106 

Time  tickets,  4 

Tools  expense  account,  Prob- 
lem 75,  271 

Trading  and  profit  and  loss 
account,  Exhibit  38, 
287 

Train  (filling),  71 
Transfer  of  stock,  260 
Trial  balance,  268,  296 
Type  printing  order,  Problem 
1,7,9 


Undistributed     factory     over- 
head, Problem  77,  303 
Unused  capacity,  cost  of,  143 
Exhibit  32,  146 
Problem  44,  145 
Upper    leather    cost    formula, 

205 
Upper  leather  record,  Exhibit 

18,  43 
Problem  9,  44 

Value  of  floor  space,  Problem 

71,  247 

Voucher  record,  26 
Voucher  stamp,  Exhibit  12,  27 

Wage  systems,  77 

Waste  in  manufacturing  knit 
goods,  70 

Water  account,  293 
Problem  71,'  245 

Weave  room  report,  196 

Weaving  mill  overhead  ex- 
pense, 134 

Weight  of  material  required 
for  silk  goods,  Problem 
25,  74 

Weighted  averages,  60 

Wool  sorting,  65 

Work  in  process  account,  256, 
265 

Working  sheet,  112 

Workmen's  efficiency,  194 
Problem  59,  195 


Yarn,  count,  129 


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